life insurance in db plans

[Guest mich823]

can you put life insurance in a db plan with only a sole prop. or a one life corp?

[Belgarath]

Yes.

[Guest Keith N]

While were on the subject.... I just had a guy ask me about putting a "last to die" policy into a db plan. The policy would pay off when the last of the participant and his spouse (not a participant) dies.

I said it smelled a bit odd, but I didn't know the answer. If the participant dies first, then the plan would be insuring a non-participant (spouse). That didn't seem kosher.

Also, would you have to provide it for other participants? I wouldn't think your average Joe would look at that as much of a benefit.

[Belgarath]

Depends upon who you ask. There are experts who come down on both sides of the issue. I don't like it myself.

If you take the position that it is allowable, you'd definitely have to offer to all participants - this would be a benefits/rights/features issue. As far as the benefit to the participant, it actually would be a benefit, because the plan is providing it, and the participant isn't paying for it. Would just require higher contributions from the employer.

[Guest merlin]

I think you're correct in your consideration that both of the insureds have to be participants.Also Belgarath's observation that the participant is getting insurance for nothing is a little inaccurate in that the participant has to pick up the PS58 cost as income>.But that's a consideration with any insurance in a qualified plan,not just second-to-die.

[Belgarath]

Good point.

[AndyH]

Unless something changed under EGTRRA that I missed, a deduction is not permitted for a life insurance premium paid on behalf of a self employed person in a qualified plan, so I think the answer is no, it is not doable from a practical standpoint unless the organization is incorporated.

[Belgarath]

AndyH - I think you are confusing something here. The only portion that is not deductible by the self-employed person is the taxable term cost (also known as PS58). The balance of the premium is indeed deductible, and has been right along. So, for example, if you have 10,000 premium with $400.00 taxable term cost, the S/E person deducts 9,600.