Nonqualified Plans • Group Carve-Out Plans • Table I • Universal Life • Tax Treatment
Group Carve-Out Plans
A group carve-out plan replaces group term life insurance coverage in excess of $50,000 with individual universal life insurance policies owned by the executives. Under IRC Section 79, employees must report the cost of employer-provided group term life insurance over $50,000 as taxable income, calculated using government Table I rates. By carving out the excess coverage and replacing it with a UL policy, the employer eliminates the executive’s Table I income inclusion.
The employer deducts premiums for the group term portion as an employee benefit and premiums for the individual UL policies as compensation. The executive owns the UL policy personally, so it is portable and can be continued after retirement or job change. The $50,000 base group term coverage terminates when employment ends.