Selling Concept: Connect DI With Nonqualified Deferred Comp
If youre looking for a winning combination, try connecting disability income insurance with nonqualified deferred compensation opportunities. This will enable you to deliver a customized benefits program, with tax advantages, to your business clients.
The target market: highly compensated employees.
Lets look at the dynamics.
A companys excellence begins and ends with its most valuable asset–productive, innovative and effective employees. And yet, there may be a benefits gap between executives and staff. There also may be a benefits gap between your clients company and its competition.
But with two options for establishing a customized benefits program, DI and NQDC, business owners can select the employees they wish to include and gain a tax benefit for the organization.
Thats important, especially when you consider that it is nearly impossible for highly compensated executives to obtain disability and retirement benefits equal to those provided by group plans to the general staff, when benefits are measured as a percentage of pay. In a competitive hiring market, your clients may be losing key executives due to this gap.
When you help client companies create a customized DI and NQDC benefits program, you also help them successfully retain and reward key executives–protecting their companys competitive advantage.
–Disability Income: Employer-sponsored multilife DI plans offer attractive benefit packages at discounted premium rates. The level premium structure of the individual DI contracts allows business owners to stabilize overall costs. More important, the owners are the ones who select which employees to cover with individual policies that supplement any existing group plan.
–Nonqualified Deferred Compensation Plans: A NQDC retirement plan is an agreement between an employer and select key employees to provide income deferral and supplemental retirement benefits. Business owners often choose life insurance policies to fund NQDC plans because of unique financial, tax and death benefit characteristics.
Earlier, we said there are tax advantages to these programs. What are they?
For the DI plan, a current income tax deduction is available for premiums paid by the corporation.
Unlike the DI plan, the NQDC plan has a current cost that includes the loss of the corporate income tax deduction on money used to pay the life insurance premium. Otherwise, these funds would have been deductible compensation paid to the employee participating in the NQDC plan. Yet, when you offer clients a corporate-owned life insurance policy as the informal funding vehicle for a NQDC plan, you also offer them the opportunity to build cash value on a tax-deferred basis.
Producers and their business-owner clients may find it advantageous to work with carriers that offer both DI and NQDC plans. Thats because, when the business is placed with one company rather than two or more, customization and processing efficiencies are more likely available.
In sum, clients benefit when you offer them DI connected with NQDC. This combination helps them increase opportunities to attract top recruits, enhance the balance sheet, and achieve continued business success for generations to come.
Charles D. Osmond, J.D., CLU, ChFC, manages the advanced underwriting department, and Paul G. Wesling is director of disability income market development and sales, for Union Central Insurance and Investments, Cincinnati, Ohio. Osmond can be reached at firstname.lastname@example.org. Wesling can be reached at email@example.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.