Advanced Markets Archives - Page 5 of 6

Buy-Sell Agreements: Planning for the Owner Who Leaves Alive

September 26, 2026April 20, 2021 by Tim Fuller

Advisor and client reviewing an advanced markets estate planning strategy in a private office

Buy-sell planning usually focuses on what happens when an owner dies. Insurance funds the purchase, the estate gets cash, and the survivors keep the business. But most owners leave alive, through retirement or departure, and those buyouts are often paid over years. Life insurance still has an important role.

Key takeaways

Lifetime buyouts often use a down payment plus an installment note, which leaves the seller exposed if the buyer dies.
Existing buy-sell coverage on a departing owner can be kept in force to protect the remaining owners’ ability to pay the note.
When a key employee buys out a retiring owner, the buyer can own coverage personally and collaterally assign it to the seller for the loan balance.

Every business should have a documented, updated transition plan. Without one, owners go to bed not knowing who their partner will be in the morning.

Death isn’t the only exit

At death, insurance-funded buy-sell agreements work smoothly: tax-free proceeds buy the deceased owner’s interest from the estate, which generally receives a stepped-up basis. That’s why planning tends to focus there.

More often, an owner leaves for retirement, health or other reasons. The buyout usually takes the form of a down payment, if any, and an installment sale over an agreed term at an agreed interest rate. That creates new risks that insurance can address.

Scenario 1: Remaining owners buy out a departing partner

If the buy-sell was insured, the policy on the departing owner can stay in force. Should the seller die during the payout, the remaining owners have funds to pay off the balance, and the seller’s family knows the note will be paid.

It can be cleaner to transfer the policy to the departing owner and have them collaterally assign it for the loan balance. Tax consequences of the transfer and who pays premiums need to be worked out with the client’s advisors.

Scenario 2: A key employee buys out a retiring owner

Here the seller wants assurance that the note will be paid if the buyer dies. Carriers generally won’t let a creditor buy coverage on a debtor. Instead, the buyer purchases personal coverage and gives the seller a collateral assignment for the balance and term of the loan.

We recently helped on a case like this: advising on structuring the buyer’s personally owned coverage, on drafting the collateral assignment, and on presenting the case to the carrier so underwriting understood the purpose.

Keep the plan current

Buy-sell agreements should be reviewed as values, owners and tax rules change. The Supreme Court’s 2024 decision in Connelly v. United States is a reminder that how the agreement is structured and who owns the policies matters. See our articles on cross-purchase agreements and cross-purchase vs. entity redemption.

We’re happy to join calls with you, your clients and their other advisors on any buy-sell planning or funding question.

Frequently asked questions

Does a buy-sell agreement only cover death?

No. A well-drafted agreement also addresses retirement, disability, divorce and departure, and sets the price and payment terms for each.

Can a seller buy life insurance on the person buying their business?

Carriers generally won’t recognize a creditor’s insurable interest in a debtor. Instead, the buyer can own a policy and collaterally assign it to the seller for the outstanding loan balance.

What happens to buy-sell life insurance when an owner retires?

It can be kept in force to secure an installment buyout, transferred to the departing owner, or surrendered. Each option has tax and planning implications to review with advisors.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

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Using Indexed Universal Life to Fund Executive Bonus Plans

September 26, 2026April 6, 2021 by Tim Fuller

A Section 162 executive bonus plan is simple: the employer pays the premium on a policy the executive owns. Funded with indexed universal life and designed thoughtfully, that simple chassis becomes one of the most attractive nonqualified benefits a business can offer.

Key takeaways

IUL gives the executive tax-deferred growth linked to an index, with downside protection, plus the potential for tax-free retirement income.
Design choices — bonus grossed up for taxes, paid-up funding by retirement, an LTC rider — make the plan feel like a lifetime benefit.
A two-policy approach (term for working-years need, smaller IUL for life) can keep costs manageable.

A well-designed executive bonus plan doesn’t just sell more easily — it stays valuable to the executive long after retirement.

Why indexed UL fits executive bonus plans

In an executive bonus plan, the executive owns the policy and the employer deducts the bonus as compensation. Because the executive keeps the policy, the product choice matters. Indexed UL credits interest based on an index, with a floor that protects against market losses, and its cash value can later be accessed through withdrawals and loans for supplemental retirement income. That accumulation potential is what turns the plan from “some life insurance” into a meaningful benefit. For the tax comparison, see overfunded UL vs. a Roth IRA.

Design features that add value

Eliminate sticker shock. The bonus is taxable income to the executive. Gross it up so the after-tax amount covers the premium and the remainder can cover the tax.
Skip cost recovery when possible. Reimbursement provisions reduce the plan’s appeal. If recovery is essential, split dollar may be a better fit; otherwise, the employer can start with lower premiums and increase the bonus as service lengthens.
Fund to paid-up status. A policy that needs premiums after retirement feels like a future burden. Aim for a design that can carry itself into the executive’s non-working years.
Add a long-term care rider. Tax-free accelerated benefits for care give the executive protection for life.

The two-policy solution

A paid-up IUL with an LTC rider can be expensive. Since death benefit needs are highest during working years, one approach is to cover the bulk of that need with level term through the expected working life, then add a smaller IUL. The IUL’s death benefit can help with long-term care costs if needed, or provide estate liquidity if not.

Setting expectations

Illustrations for IUL are not guarantees. Caps, participation rates and policy charges can change, and loans reduce the death benefit. Show the executive conservative illustrated rates and explain that the policy needs monitoring. Our advanced markets team can help you compare carriers and design options. See also single vs. double bonus designs.

Frequently asked questions

Is the executive taxed on an executive bonus plan?

Yes. The bonus is reported as W-2 income to the executive and is generally deductible by the employer as reasonable compensation. Many plans gross up the bonus to cover the tax.

Why use indexed UL instead of term in a bonus plan?

IUL builds cash value that can supplement retirement income and can carry a long-term care rider, making the benefit valuable for life. Term provides protection only during the coverage period.

Can the employer get its money back if the executive leaves?

Not under a pure executive bonus plan, since the executive owns the policy. A restrictive endorsement or a split dollar arrangement can add recovery or vesting features if needed.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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How Much Key Person Life Insurance Can a Business Buy?

September 26, 2026March 30, 2021 by Tim Fuller

When a business owner asks how much coverage the company can buy on a key executive, the answer depends on more than salary. Knowing everything carriers will count can significantly increase the amount you can place.

Key takeaways

Many carriers allow key person coverage of up to about 10 times total compensation, not just W-2 salary.
Business debt and buy-sell obligations can justify additional coverage.
Term insurance is often a cost-effective fit because the need usually ends at retirement or a planned exit.

Total compensation includes bonuses, perks, benefits, retirement contributions and deferred compensation — not just salary.

The standard key person formula

Many carriers will allow a business to own coverage on an important executive of up to roughly ten times their total compensation package. That package includes more than W-2 salary:

Bonuses
Perks such as club memberships
Fringe benefits such as health insurance
Qualified retirement plan contributions
Deferred compensation
Use of a company car or other business assets

Guidelines vary by carrier, so confirm current rules. See our related piece on key person coverage for sweat equity.

Stretching the limits

Some carriers will allow a larger multiple with strong financial justification. Others may use a lower multiple if the executive is unlikely to work ten more years. For owner-executives, a carrier may count part of the proposed insured’s Schedule K income. If the executive is receiving ownership interests, the value of those interests may be treated as compensation.

Debt and redemption obligations

Some carriers will allow extra coverage tied to a portion of the company’s long-term loans, if losing the executive would hurt the company’s ability to repay. Lenders sometimes require this coverage and take a collateral assignment.

A buy-sell agreement can also justify coverage: the agreed purchase price can be added to the amount sought. If there’s no agreement, that’s an opening to discuss one. Be aware that Connelly v. United States (2024) changed how company-owned policies funding a redemption can affect business value for estate tax, so structure matters. See cross-purchase buy-sell planning.

Why term often works

Key person needs usually last only until the executive’s expected retirement or the end of a planned period of service. That makes cost-effective term insurance a natural fit, and company-owned cases are often easier to place. Our Underwriting Team can help you document financial justification before you submit.

Frequently asked questions

How is key person insurance calculated?

Many carriers allow up to about 10 times the executive’s total compensation, including salary, bonuses, perks, benefits, retirement contributions and deferred compensation. Rules vary by carrier.

Can business debt increase key person coverage?

Often, yes. Some carriers will allow extra coverage based on part of the company’s long-term debt if losing the executive would affect repayment.

Should key person insurance be term or permanent?

Term is often the most cost-effective choice because the need usually ends at retirement. Permanent coverage may make sense if the policy will later fund a buy-sell or a benefit for the executive.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Nonqualified Plans for Business Owners: Who Really Benefits?

September 26, 2026March 23, 2021 by Tim Fuller

Nonqualified plans are great for rewarding key employees. But for a business owner who wants to use one for themselves, the tax rules often erase the advantage. Here’s why, and what may work better.

Key takeaways

Qualified plans are deductible and tax-deferred but capped and must include eligible employees.
For a sole owner, deferred compensation and executive bonus plans usually offer no real tax advantage, whether the business is a pass-through or a C-corp.
A personally owned, overfunded life insurance policy may be a more useful alternative for owners.

The tax code, not the owner’s position, creates the double standard: what works for employees often doesn’t work for the owner.

Qualified plans: deductible, but limited

Qualified retirement plans give the employer an immediate deduction while participants defer tax until they receive benefits. For an owner, the drawbacks are contribution limits and the requirement to cover qualifying employees, which can make the plan less attractive for the owner’s own retirement.

Nonqualified plans: flexible, but the deduction waits

Nonqualified plans usually take the form of deferred compensation or executive bonus plans. The employer can choose who participates and how much each receives. But the employer’s deduction only happens when the amount becomes taxable income to the employee.

No owner advantage in a pass-through

For an S-corp, partnership or LLC taxed as one, executive bonus premiums are deductible to the business but show up on the owner’s W-2 that year. Amounts held back under a deferred comp plan are still reported on the owner’s K-1 in the year earned. Either way, the owner pays tax now. See 162 bonus plans for S-corp owners.

C-corp owners can fare even worse

In a C-corp, executive bonus premiums are again deductible but reportable on the owner’s W-2. Deferred comp is less favorable: money held back is first taxed at the corporate rate. When it is paid out, the company gets a deduction, but the owner is taxed again at personal rates.

A more useful alternative

For many owners, a personally owned, overfunded cash value life policy works much like a Roth IRA without its income or contribution limits. See how overfunded UL compares to a Roth IRA. Our advanced markets team can help you evaluate the right structure for your client.

Frequently asked questions

Can a business owner benefit from a deferred compensation plan?

Usually not much if they own 100% of the business. In a pass-through, deferred amounts are still taxed to the owner that year; in a C-corp, they may be taxed twice.

Is an executive bonus plan useful for an owner?

The premium is deductible to the business but taxable to the owner, so there is little net tax benefit. The value comes from the policy itself, such as its cash value and death benefit.

What is a better option for owners?

Many owners use a personally owned, overfunded cash value life policy for tax-deferred growth and tax-free income access, alongside their qualified plan.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Using RMDs to Fund Survivorship Life Insurance

September 26, 2026March 2, 2021 by Tim Fuller

Many retired couples take required minimum distributions they don’t need to live on. Redirecting those after-tax dollars into a survivorship life policy can turn a taxable distribution into a larger, income-tax-free inheritance. Getting the case approved, though, takes careful preparation.

Key takeaways

RMDs generally begin at age 73; unneeded distributions can be repositioned into second-to-die coverage.
Survivorship life pays at the second death, when heirs face the SECURE Act 10-year rule and possible estate or state taxes.
Underwriters need a real purpose — estate liquidity, equalization or asset distribution — not just “increase the legacy.”

“To increase the legacy” is not a purpose underwriters accept. Estate liquidity, inheritance equalization and ease of distribution are.

Why RMDs and survivorship life fit together

RMDs generally begin at age 73. Clients with enough other income often reinvest these distributions or leave them in a taxable account. When the IRA eventually passes to children, most non-spouse heirs must empty it within 10 years under the SECURE Act, often during their own peak earning years. Using the after-tax RMD to pay premiums on a survivorship (second-to-die) policy creates an income-tax-free death benefit at the second death, which can offset those taxes or simply leave heirs more. See IRA planning under the SECURE Act.

The underwriting challenge

Many middle-market retirees don’t have traditional financial justification. With a federal estate tax exemption of $15 million per person ($30 million per couple) from 2026, most won’t owe federal estate tax, and retirees have little earned income to replace. Carrier marketing sometimes promotes RMD strategies, but underwriters decide what gets issued.

Percent-of-net-worth justification

Many carriers are open to coverage for estate liquidity, inheritance equalization or making assets easier to divide. Some will allow coverage as a percentage of the client’s net worth, even without traditional need. The percentage varies by carrier, and existing coverage counts against it. State estate or inheritance taxes, which can apply at much lower levels than the federal tax, can also support a stated purpose.

How we help you place the case

Don’t just submit an application and hope. Share the client’s situation with us and we’ll informally shop it with receptive carriers. When you submit, we can write a cover letter that explains the purpose clearly. It’s worth the effort: a permanent policy on an older couple is a meaningful case for the client and for you. See also RMDs in life insurance sales.

Frequently asked questions

Can I use my RMD to pay for life insurance?

Yes. Once the RMD is withdrawn and taxes are paid, the remaining money can be used for any purpose, including premiums on a life insurance policy such as survivorship life.

Why use survivorship life for an RMD strategy?

Survivorship life insures two people and pays at the second death, which is when an inheritance passes to children. It usually costs less than two individual policies.

How do underwriters justify coverage for retirees?

Many carriers allow coverage based on a percentage of net worth for estate liquidity, equalization or ease of distribution. The stated purpose matters, so a clear cover letter helps.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Who Are Your Best Business Owner Prospects for Life Insurance?

September 26, 2026February 22, 2021 by Tim Fuller

Business owners who ask what their company is worth are often really asking bigger questions: how to exit, how to protect the business, and how to pass it on. Those conversations lead naturally to life insurance. Here is a practical profile of the owners most likely to need your help.

Key takeaways

Owners who request a business valuation are usually signaling exit, succession or protection needs that life insurance can solve.
Closely held companies in professional services, manufacturing, construction, wholesale and retail trade are frequent valuation seekers.
Buy-sell funding, key person coverage and executive bonus plans are the three most common planning outcomes.

A business valuation is rarely the end goal. It is the opening to a conversation about exit planning, protection and the next generation.

Why business valuations signal a planning need

An owner who wants to know what the business is worth is usually thinking about what happens next: selling, retiring, bringing in a partner, or handing the company to family. Each of those events creates a funding question, and life insurance is often the most efficient answer.

Planning needs that commonly surface include exit and succession planning, business continuation and protection, wealth transfer to the next generation, and supplemental retirement income for the owner.

The profile of a strong business owner prospect

Industries that commonly seek business valuations include:

Professional, scientific and technical services
Manufacturing
Construction
Wholesale trade
Retail trade

These are typically closely held S or C corporations, with some partnerships, employing fewer than 100 people and often operating for decades. Many have annual revenue in the low millions, which is large enough to create real value to protect but small enough that the business depends heavily on one or two owners.

The three planning solutions that follow

Buy-sell funding. Life insurance gives surviving owners or the company the cash to buy a deceased owner’s interest at a fair price. See our overview of cross-purchase buy-sell planning.
Key person coverage. Protects the business against the loss of an owner or employee whose skills drive revenue.
Executive bonus plans. A simple way to reward and retain key people with employer-funded permanent coverage.

Family businesses and the next generation

Most family businesses do not survive into the second generation, and far fewer reach the third. Life insurance on the owners can provide the liquidity the next generation needs to keep the business running, pay estate costs, or buy out family members who are not involved.

It is also a clean way to equalize inheritances. If one child will run the business and another will not, a policy can leave the non-active child an equal share without splitting ownership and creating tension.

Frequently asked questions

Why are business valuation requests a good lead for life insurance?

Owners who want a valuation are usually preparing for a sale, succession or partner change. Each of those events needs funding, and life insurance can provide it efficiently.

What life insurance solutions do business owners need most?

The most common are buy-sell funding, key person coverage and executive bonus plans. Family businesses also use life insurance for estate liquidity and inheritance equalization.

How can life insurance help with a family business succession?

It can provide cash to keep the business running, pay estate costs, or give children who are not in the business an equal inheritance so ownership can pass to the child who is.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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162 Executive Bonus Plans for S-Corp Owners

September 26, 2026February 16, 2021 by Tim Fuller

Section 162 executive bonus plans are usually pitched for key employees, but they can work well for S-corporation owners themselves. The plan is simple to set up and administer, and it can be designed to meet several needs at once. Here is how to position it for an owner-employee.

Key takeaways

An S-corp owner who is also an employee can receive a deductible bonus used to pay premiums on a policy they own.
Plan design can match the need: term for income replacement, overfunded permanent coverage for supplemental retirement, or both.
Riders for long-term care and waiver of premium can extend the plan beyond a pure death benefit.

A bonus is a bonus: the plan can fund whatever coverage the owner actually needs, from term to permanent to LTC.

How a 162 bonus works for an S-corp owner

In a 162 plan, the business pays a bonus to the employee, who uses it to pay premiums on a life insurance policy they personally own. The bonus is generally deductible to the business as compensation and taxable income to the employee. An S-corp owner who draws a salary as an employee can participate, which lets the owner pay for personal coverage with business dollars.

Because there is no formal plan document requirement like a qualified plan, it is easy to implement and administer. Have the client’s tax advisor confirm how compensation and payroll tax apply to their situation, especially for greater-than-2% shareholders.

Match the policy to the purpose

Not every need lasts a lifetime. If the goal is replacing income before retirement, term insurance may be the most economical choice, and there is no reason a 162 plan cannot fund term. If the need is permanent, such as estate liquidity, the policy has to be built to last.

Sometimes two policies work better than one: a term policy for income replacement plus a permanent policy for lifelong needs. At retirement the term can lapse or be converted if the need has grown.

A supplemental retirement resource

Highly compensated owners often face limits on qualified plan contributions. An overfunded permanent policy can build cash value that may be accessed on a tax-advantaged basis through withdrawals and loans to supplement retirement income. The owner can choose a lean or heavy funding design based on goals and cash flow.

If the plan uses indexed UL, see our post on using indexed UL to fund executive bonus plans.

Add long-term care and disability protection

LTC or chronic illness rider. Allows early access to the death benefit if care is needed. If the policy is also meant to supplement retirement, LTC withdrawals can undercut that goal, so consider one overfunded policy for retirement and a second with an LTC rider.
Waiver of premium. Often overlooked, it keeps the policy in force if the owner becomes disabled and can no longer work.
Other vehicles. If more life coverage is not needed, the bonus can fund an annuity or standalone LTC policy instead.

Frequently asked questions

Can an S-corp owner participate in a 162 executive bonus plan?

Generally yes, if the owner is also a W-2 employee of the S corporation. The bonus is typically deductible to the business and taxable to the owner. Confirm the details with the client’s tax advisor.

Should a 162 bonus plan fund term or permanent life insurance?

It depends on the need. Term fits income replacement before retirement; permanent fits lifelong needs or supplemental retirement income. Some owners use both.

Can a 162 bonus plan include long-term care coverage?

Yes. The policy can carry an LTC or chronic illness rider, or the bonus can fund a standalone LTC policy.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Trust-Owned Life Insurance Policy Reviews: Opportunity and Liability Protection

September 26, 2026February 9, 2021 by Tim Fuller

Not every life insurance policy held in a trust was built on guarantees. Many older policies have underperformed their original illustrations and could lapse before they do their job. Offering trust-owned policy reviews protects trustees and advisors, and it builds referral relationships.

Key takeaways

Non-guaranteed policies held in trusts may underperform and lapse early if nobody is watching them.
A documented policy review can be an important defense if beneficiaries later question how a policy was managed.
Offering complimentary trust policy reviews is a strong way to start relationships with CPAs, estate attorneys and trust companies.

A documented review, even one the client chose not to act on, can make the difference when beneficiaries later ask what went wrong.

Why trust-owned policies need regular reviews

Many trust-owned policies were designed with non-guaranteed assumptions. After years of lower interest crediting and rising cost of insurance charges, some are now projected to lapse before the insured’s life expectancy. Because these policies usually carry large face amounts on older insureds, a lapse can mean a significant loss to the trust beneficiaries.

Trustees, often family members, may not realize they have a duty to monitor the policy. For more on this, see our post on older UL policies at risk of lapse.

A cautionary story

A carrier representative shared a case in which trust beneficiaries sued the writing agent, the brokerage general agency and the carrier for failing to maintain a sound insurance strategy and review the policy to prevent a premature lapse.

A review had been done within the prior three years. It identified the underperformance and recommended an alternative. The insureds, the beneficiaries’ parents, chose not to act and did not tell their children. The documented review was enough for the case to be dismissed. The lesson: review, recommend and document.

Use reviews to open doors with professionals

This story is a natural conversation starter with CPAs, estate planning attorneys and trust companies. Many have clients or friends serving as trustees who may not understand their exposure.

Offer a complimentary review of trust-held policies.
Share findings in plain language with the trustee and the client’s other advisors.
Look for more efficient solutions even when a policy is performing, since newer products may offer better guarantees or lower cost.

How SRS helps

We can help you order in-force illustrations, analyze current performance, and compare alternatives. For complex trust designs, our advanced markets support can help you structure recommendations. Because trust-owned policies tend to be large, even one review a month can meaningfully grow your practice.

Frequently asked questions

Why do trust-owned life insurance policies need reviews?

Many were built on non-guaranteed assumptions that have not held up. Without periodic review, a policy can lapse before the insured dies, defeating the trust’s purpose.

Can a policy review reduce liability for an advisor or trustee?

Documenting a review and recommendation can be an important defense if beneficiaries later challenge how a policy was managed. It is not a guarantee, so consult legal counsel about specific duties.

What does a trust-owned policy review include?

Typically an in-force illustration at current and guaranteed assumptions, an assessment of lapse risk, and a comparison with alternatives such as funding changes or a replacement policy.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Life Insurance for Non-Owner Family Members in the Business

September 26, 2026February 2, 2021 by Tim Fuller

Many family businesses are built with help from a spouse, sibling or adult child who works hard but owns no stock. If the owner dies, those family members may have no claim on the value they helped create. Life insurance offers a simple way to protect them.

Key takeaways

Family members who work in a business without ownership often sacrifice pay and opportunity for its growth.
If the owner dies, successor owners may feel little obligation to those non-owner family members.
Company-paid or bonus-funded life insurance can reward their contribution and protect their future.

Sweat equity without actual equity leaves loyal family members exposed if the owner dies unexpectedly.

The unsung builders of family businesses

Entrepreneurs often build businesses by reinvesting nearly everything in the early years. Family members frequently make the same sacrifice: working long hours, accepting lower pay, and passing on other opportunities so the business can grow.

The difference is ownership. When the owner holds all the equity, a spouse, sibling or child who helped build the company may have nothing to show for it on paper.

What happens if the owner dies

An owner may fully intend to reward family members once the company succeeds. An unexpected death can end that plan. Successor owners, outside buyers, or even other heirs may not share the same sense of obligation, and the non-owner family member may lose both income and job security.

This is especially common in blended families or when one child runs the business while others do not. For succession strategies, see our post on succession planning for family-owned businesses.

Ways life insurance can help

Owner-insured policy with the family member as beneficiary. Provides a defined benefit if the owner dies before rewarding them.
Executive bonus plan. The business pays a bonus used to fund a policy the family member owns, building value they control.
Split-dollar arrangements. The business and the family member share costs and benefits under a formal agreement.

Each option has different tax and control implications, so coordinate with the client’s tax and legal advisors.

Bringing the idea to business owners

Owners who value loyalty respond to this conversation. It is simple, affordable and shows appreciation for the people who helped build the business. Contact us to design a plan and compare carrier options.

Frequently asked questions

Why do non-owner family members in a business need life insurance planning?

They often contribute years of work and sacrifice without ownership. If the owner dies, they may have no legal claim on the value they helped build.

What is the simplest way to protect a non-owner family member?

A policy on the owner’s life naming the family member as beneficiary, or an executive bonus plan that funds a policy the family member owns.

Is a 162 executive bonus plan available for family employees?

Generally yes, as long as the family member is a legitimate employee receiving reasonable compensation. Confirm details with the client’s tax advisor.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Charity-Owned Life Insurance: How Carriers Underwrite It

September 26, 2026January 19, 2021 by Tim Fuller

Life insurance can be a powerful way for a donor to leave a larger gift to a favorite charity. But when the charity owns the policy, carriers take a hard look at how much coverage is justified. Here is why, and what that means for your planning.

Key takeaways

State laws give charities an insurable interest in donors, but carriers apply strict financial underwriting to charity-owned policies.
In our survey of major carriers, a common limit was about ten times the donor’s annual giving, with a few carriers allowing more.
Charity-owned coverage can still work well for committed donors, especially when paired with other gifting strategies.

A donor who gives $5,000 a year may qualify for only about $50,000 of charity-owned coverage under a common carrier guideline.

Why carriers are cautious

As states passed laws giving charities an insurable interest in donors’ lives, charity-owned coverage became easy to place. Then the life settlement market grew, and some investor groups arranged for charities to buy large policies on donors with the intent of selling them later on the secondary market.

Carriers responded in two ways. Applications now ask about the intended use of coverage and any planned transfer of policy interests. And financial underwriting for charity-owned coverage was tightened significantly.

How much coverage carriers typically allow

When we surveyed major carriers, the starting point, and often the maximum, was about ten times the donor’s established annual giving to that charity. A donor who gives $5,000 a year might qualify for around $50,000.

One carrier allowed up to twenty times annual giving.
Another based limits on the projected value of the donor’s giving pattern over a portion of life expectancy.
Carriers may look beyond these standards in some circumstances.

Guidelines change, so confirm current rules before quoting. For more on how carriers justify face amounts, see our post on financial underwriting.

Other ways to use life insurance for charitable giving

Naming the charity as beneficiary of a policy the donor owns, which avoids charity-owned underwriting limits but keeps the donor in control.
Gifting an existing policy the donor no longer needs.
Wealth replacement, where life insurance replaces assets given to charity during life for the benefit of heirs.

Setting realistic expectations

Charity-owned life insurance is not a shortcut to large premiums. It is a meaningful tool for committed donors who want to multiply their legacy. Contact us to review carrier guidelines and find the best fit for a donor’s situation.

Frequently asked questions

Can a charity own a life insurance policy on a donor?

Yes. Most states give charities an insurable interest in donors, but carriers apply their own financial underwriting limits.

How much life insurance can a charity own on a donor?

A common carrier guideline is about ten times the donor’s annual giving to that charity. Some carriers allow more, so check current guidelines.

What are alternatives to charity-owned life insurance?

The donor can own the policy and name the charity as beneficiary, gift an existing policy, or use life insurance to replace assets given to charity.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Buy-Sell Agreements: Planning for the Owner Who Leaves Alive

Death isn’t the only exit

Scenario 1: Remaining owners buy out a departing partner

Scenario 2: A key employee buys out a retiring owner

Keep the plan current

Frequently asked questions

Tim Fuller

We’re Here to Help

Why indexed UL fits executive bonus plans

Design features that add value

The two-policy solution

Setting expectations

Frequently asked questions

Tim Fuller

We’re Here to Help

Tim Fuller

We’re Here to Help

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller