Death Benefit Only Plans - Life Policies for
Businesses. IHP Advisors
Having the right plan in place
can help recruit key
employees, keep key
employees, and plan for
An employer uses a group carve-
out plan to remove highly
compensated employees from the
company's group term life
insurance plan and obtains
individual life insurance policies.
A DBO plan is an employee
benefit plan that provides a
death benefit to the employee's
family or a named beneficiary
at the employee's death.
Because DBO plans are based
on individual policies, they are
portable, which makes them
attractive to the highly
compensated employees who
are selected to participate.
The insured employee may
not have any direct rights
over the policy.
Upon the employee's death,
the plan beneficiaries
receive the death benefit
under the DBO plan.
Premiums may not be taxable as
income to the employee/insured
if the employee has no interest in
the policy, and the employer
retains control over naming
For life insurance contracts entered
into after August 17, 2006, the death
benefit on an employer-owned life
insurance policy is not taxable to the
employee if certain specific
requirements are met before the
issuance of the policy.
One exception is that the insured is an
employee of the policyowner-employer at
any time in the 12 month before death, or
that the employee is either a more than
10% owner of the business, or highly
compensated, or in the top 35% of all
employees ranked by pay.
The death benefit must be paid to
qualifying members of the insured's
family or a named beneficiary, or the
proceeds must be used by the
employer to buy the insured's interest
in the business from qualifying family
members of the employee.
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