Life Insurance Policies Purchased By Corporations For Executives
Most life insurance policies are privately purchased by an individual to protect their families. In major corporations, companies often contribute to life insurance premiums for their executives. If the CEO, chief financial officer or president passes away, the company wants some cash benefit to help the company remain solvent while they establish new management or leadership. Or, they simply may want the cash that reimburses the amount they’ve paid in life insurance premiums over the years.
Many of these corporate life insurance policies are split-dollar life insurance policies in which the company and the employee’s beneficiary both benefit from the person’s death. The company and the employee split the cost of the life insurance premiums in exchange for the company profiting should the employee die.
Enron’s CEO Kenneth Lay is a good example of this type of policy. He and Enron agreed to a split-dollar life insurance policy in the late 1990s. They paid $1.25 million in life insurance premiums for a $12 million life insurance policy. When he died, they received a share of the money, but his wife received the majority.
Private Life Insurance Policies
Most life insurance policies are taken out by you or a family member to protect family members or loved ones financially when you die. You are responsible for all of the premiums. When filling out your life insurance application, you name the person you want to benefit from your death. This person is called a beneficiary.
Naming A Beneficiary On Your Life Insurance Policy
The person you name as your beneficiary is going to be someone close to you.
Most policies allow you to name your primary beneficiary and then a secondary in case your first choice has passed away. Make sure you keep your beneficiary choices up to date. Issues like break ups or divorces may change your mind on who should benefit from your death. If you forget to change them, someone you no longer like will gain money and it will be hard for your other family members to stop it from happening. Once you die, the person listed as the beneficiary owns the life insurance policy and contacts the company for payment.
Life Insurance Money And Taxes
You may be wondering how much, if anything, the IRS will gain from your life insurance policy. Life insurance is not taxable unless the amount you receive was more than the policy amount. For example, if your spouse had a $100,000 life insurance policy and you received additional interest bringing the lump sum interest to $110,000, you would have to declare the additional $10,000 as interest income. Otherwise, don’t list lump sum life insurance benefits on your yearly tax forms.