Using Life Insurance for Tax Reduction and Asset Preservation

Deftned-Benefit Plans Can Meet Small Business Owners' Needs

Matthew Gaglio

Thirty years ago, life insurance was a significant part of pension plan funding. It was not uncommon for insurance agencies to have dedicated pension specialists or even a fully staffed pension department. These pension specialists worked with the CPAs who, along with actuaries, were responsible for developing the strategy behind a plan and tailoring it to meet each small business' unique goals and objectives. Once implemented, the CPA remained actively involved, reviewing annual limits and laws in order to ensure that the tax benefits offered through the plan were fully realized by the business. To do that successfully, there was never any question whether life insurance would be part of the process; it was simply standard operating procedure to include a whole life insurance policy as an asset in a defined benefit plan within the “incidental benefit” limits prescribed by the IRS. Pension specialists and CPAs saw life insurance as integral in helping to protect and complete the benefits of a qualified retirement plan due to a premature death.