Life Insurance and Qualified Retirement Plans

Where Life Insurance Fits

Life insurance fits into the qualified retirement planning picture in one of two ways:

(1) Fully insured plans (i.e., 412(e)(3) defined benefit plans) use plan contributions to purchase annuity contracts only or a combination of life insurance policies and annuity contracts for the express purpose of accumulating retirement funds.

(2) Split-funded plans use life insurance to fund part of the retirement benefits, and a trustee-managed investment account to fund the rest.

Split-funded plans are more common than fully insured plans because they provide two distinct benefits: life insurance protection and a flexible investment fund. However, it is worth noting that a fully insured 412(e)(3) defined benefit plan may be exempt from funding standards and regulations applicable to other qualified plans; these plans are attractive to some employers for this very reason.

Split-funded plans are more common than fully insured plans because they provide two distinct benefits: life insurance protection and a flexible investment fund. However, it is worth noting that a fully insured 412(e)(3) defined benefit plan may be exempt from funding standards and regulations applicable to other qualified plans; these plans are attractive to some employers for this very reason.