Tag Archive for: Corporate Owned Life Insurance

executive's desk overlooking a city

How to Retain Top Talent Using Executive Compensation

The effects of poor employee retention and high turnover within a business are catastrophic. In fact, poor employee retention can lead to:

  • Decreased team morale
  • Reduced employee productivity
  • Expensive recruitment efforts, and
  • Time wasted

So, how can you retain top talent within your business?

Today, employee retention goes beyond offering company-wide happy hours and snacks in the office (those strategies will only get you so far!).

Powerful compensation programs — particularly those that include executive compensation — will set you apart in the hiring and retention game.

But how can you fund these benefits? Let’s talk about how to retain top talent using executive compensation; but first, an overview of executive comp plans.

Executive Compensation Plans: The Basics

Like a snowflake, no two compensation plans are the same. There are a variety of benefits with varying degrees of attractiveness that can be bundled together in compensation design.

(Secret’s out: It’s not all about the cash!)

Executive compensation plans typically consist of the following elements:

  • Base salary (cash compensation)
  • Short-term incentive or incentive compensation (i.e. an annual bonus)
  • Long-term incentive (deferred compensation)
  • Additional benefits and perquisites

Corporate-Owned Life Insurance (COLI)

Of course, corporate-owned life insurance (COLI) can play a crucial part in many deferred compensation plans for executives. Let’s discuss what this might look like and its benefits.

What is Corporate-Owned Life Insurance?

Life insurance is a contract between a policy owner and an insurer, whereby the insurer promises to pay a designated beneficiary a sum of money, called a “death benefit,” upon the passing of the insured person, in exchange for a premium, paid as a lump sum or over time. 

With corporate-owned life insurance (COLI), the insured person is a key employee. The beneficiary may be the organization, the key employee’s heirs, or a combination. Similar policies, called bank-owned life insurance (BOLI), have been used by commercial banks for nearly 40 years.

Death benefits can be used by the organization to protect against the economic loss caused by the passing of a key person. They can also be directed to the executive’s beneficiaries to reward and incentivize performance and longevity, serving as a valuable retention and family protection tool.  

COLI designs also include a substantial cash value account, which grows tax-deferred and can be accessed tax-free via policy loans and withdrawals of principal to eventually support the agreed-upon retirement benefit, generally paid out over a period of years. 

Why Corporate-Owned Life Insurance?

There are various benefits when it comes to corporate-owned life insurance. This particular investment vehicle:

  1. Is Safe: COLI policies are issued by some of the world’s strongest insurance carriers, some of which have been around for over 150 years.
  2. Is Liquid: In the event that you choose to redeploy all or a portion of your capital elsewhere, you have the ability to do so without penalty for exit with many of the policy designs.
  3. Provides Meaningful Rates of Return: These cash values of these policies are currently earning very meaningful current rates of return. In fact, they sit somewhere between 2.5-and-6.0%, depending upon the class of policy selected, with guarantees against loss and without direct market exposure.*

Moreover, given these benefits, COLI allows organizations to balance the cost of employee benefit programs while potentially enjoying higher yields than the typical “safe” investments.

Finally, one of the most attractive features of properly-designed executive compensation plans is that they’re highly customized and tailored to an individual executive or organization. The benefits from both the death benefit and cash value components can be allocated differently depending on the situation.   

A Final Word

At Acumen Insurance Solutions, we focus on ways that we can leverage tools like COLI to make your organization’s investments support executive compensation programs that inspire growth and ensure employee retention.

Interested in learning more about COLI? Read on in our article “Why CUOLI is the Best “Otherwise Impermissible Investment” for Your Credit Union.”

Or, contact us today to learn more.

*Disclaimer: Policy performance is based on current rates as charges, and some values are not guaranteed. These policies are not considered securities. Guarantees are based on the claims-paying ability of the underlying insurance carrier. Policies are not FDIC-insured. Pricing can be based on many factors, including the insured’s age, gender, and health. Please refer to a current policy illustration for details. Please refer to 26 U.S. Code §101(a) regarding tax-fee death benefit and 26 U.S. Code § 7702 (a) (g) regarding tax treatment of cash value. Medical and financial underwriting is required. Excessive policy withdrawals and loans may cause the policy to lapse, which will result in the loss of death benefit and adverse tax consequences. Acumen Insurance Solutions, LLC does not provide tax, legal, or investment advice, and is not FINRA registered.