Page 304 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

290 The Complete Guide to Executive Compensation

Insurance Requirements by Year
By Year 0.0% Interest 10.0% Interest

None $150,000 $8,591,251 $3,000,000
1 year later 165,000 8,441,251 3,135,000
2 year later 181,500 8,276,251 3,267,000
3 year later 199,650 8,094,751 3,394,056
4 year later 219,615 7,895,101 3,513,840
5 year later 241,577 7,675,486 3,623,625
6 year later 265,734 7,433,909 3,720,290
7 year later 292,308 7,168,175 3,800,030
8 year later 321,538 6,875,867 3,858,480
9 year later 353,692 6,554,329 3,890,540
10 year later 389,061 6,200,637 3,890,600
11 year later 427,968 5,811,576 3,851,730
12 year later 470,764 5,383,608 3,766,120
13 year later 517,841 4,912,844 3,624,880
14 year later 569,625 4,395,000 3,417,756
15 year later 626,587 3,825,370 3,132,925
16 year later 689,246 3,198,791 2,756,980
17 year later 758,171 2,509,545 2,274,510
18 year later 833,988 1,751,372 1,667,980
19 year later 917,386 917,386 917,386
Total $8,591,251

Table 6-16. Insurance required by year
point in time at which it is estimated to begin. Thus, in the above example the individual
might estimate that beginning in the 21st year, a pension of $200,000 will be received. This
amount would be projected for the remaining lifetime (with either a constant or an increased
value) and the insurance values reworked.
As Table 6-16 indicates, a net income analysis would suggest some combination of
decreasing term and whole life insurance to meet the lost income needs. There are many,
however, who believe that the lost net income approach results in either overinsuring or
underinsuring, since the needs of the dependents are not examined. They, of course, can be
factored into the analysis. It merely complicates the review.
Survivor Needs. The survivor needs approach estimates expenses rather than income. These
needs can be identified and arranged in order of priority. First, there are settlement expens-
es: the amount needed to cover the decedent’s expenses (e.g., burial costs, payment of out-
standing loans, and probate costs) and estate taxes (especially important when large capital
income programs, including nonqualified, deferred compensation, exist for the survivors).
Next, there is survivor income. This can be separated into initial adjustment period (usually
several years at 75 percent or more of deceased’s net annual income), the family period (e.g.,