Page 301 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 287

the survivor to convert the unpaid installments into a lump sum. In addition, if the benefi-
ciary dies before all payments had been made, the unpaid remainder would become part of
the beneficiary’s estate. Survivor benefits are likely also from other employee benefit plans
(e.g., defined-benefit and defined-contribution pension plans).
In addition to any benefits provided by the employers, social security survivor benefits
are payable to the survivor’s family based on the employee’s primary insurance amount (PIA)
if the person was insured at time of death. In order to receive these monthly payments,
beneficiaries must meet certain eligibility requirements.
Accidental Death. A number of policies include an additional benefit if death was acciden-
tal, on top of payment of the prescribed amount. Although some policies include such
coverage only working on the job, it is more common to have 24-hour protection. Thus it
would not be uncommon to have a basic coverage of two times pay plus an additional two
times pay for accidental death. Due to the limited conditions under which payment will be
made, this amount is not charged against the $50,000 tax-free exclusion, which will be
described below and is usually paid for by the company. Even a high face value is probably
only of moderate importance to an executive due to low probability.
Business Travel Accident Insurance. This kind of policy provides life insurance if the
executive is killed accidentally while traveling on company business. Due to cost concerns,
some plans exclude salespersons while driving in their own territory; others establish a
maximum payoff for a common accident (e.g., $1 million).
Some might structure level of benefit by job category (e.g., corporate officers, $500,000;
division heads, $400,000; assistant division heads, $300,000; department heads, $200,000; and all
others $50,000). Others might simply use a multiple of three to five times pay, but the individ-
ual maximum (e.g., $500,000) often significantly lowers this multiple for higher-paid executives.
Some companies liberalize the business travel accident insurance for executives by lifting
the individual and common accident maximum. Another approach is to include the execu-
tive’s spouse (e.g., at half the executive’s benefit level) when authorized to travel with the
executive on company business. Another liberalization is to lift an exclusion, such as piloting
private aircraft for executives who use their own planes to fly on company business. Business
travel accident insurance is not subject to the $50,000 income-tax-free insurance restriction.
However, the earlier outlined impact of income and estate taxes (including assignment) needs
to be reviewed. A high face value may be of high importance to an executive who travels
extensively; otherwise, it is probably of moderate importance.
Kidnap and Ransom Insurance. This is especially attractive for executives in politically
volatile situations overseas. Such policies might have a face value of $5 million to $10 million,
with a deductible ranging from 1 to 10 percent of policy value, and/or it may not include ran-
som payments but would cover related expenses such as negotiation costs and information
leading to the apprehension of the kidnapper. Since this is typically directed at minimizing
company loss, it is similar to key employee life insurance; the value to the executive is essen-
tially intrinsic (i.e., knowledge of being sufficiently important to warrant such a policy).
Needless to say, companies are reluctant to talk of such insurance policies for fear that knowl-
edge might prompt someone to test the payout provisions. This is probably of low importance
to most executives.
Supplemental Insurance. Additional insurance can be provided through a supplementary
employee-pay-all program. Such a plan would allow the individual to purchase insurance in