Banking & Finance
Safeguard your future
Why it’s never too soon to think about life insurance for your executives
By Mark Scott
Smart Business Cleveland | February 2008
As a CEO, life insurance is
probably not the first
thing on your mind when you wake up in the morning,
nor the last thing on your mind
when you go to bed at night.
But it’s a very real need that
every executive should give serious attention to, says Bill
Holton, principal at The Todd
Organization, a 200-employee
firm that specializes in nonqualified retirement plans and other
executive benefits.
“If you look at the family
breadwinner as being a money-making machine out in the
garage and you were pretty
assured that it was going to generate X amount of dollars over
the life of that machine, I think
you’d insure it for at least the
present value of that stream of
money,” Holton says. “An executive or an employee or any
breadwinner, it doesn’t have to
be an executive, is that money-making machine. Wouldn’t one
want to know the present value
of that future stream is in some
way insured? Everybody should
be thinking about that.”
Holton develops life insurance
plans for what he calls “top-hat
executives,” which include people in the top 35 percent on the
compensation ladder at their
companies. Because they generally make more money and
have different financial issues
than lower-level employees,
they require specialized consultation when it comes to setting
up a life insurance policy.
“As they move up the career
income ladder, there tends to be
this reverse discrimination
where social security becomes
a smaller piece of their retirement benefits,” Holton says.
“401(k) becomes a smaller
piece because of the limitations of what you can put into a
401(k). Companies will try to
open up windows or opportunities for executives to defer
money into what we call non-qualified retirement plans. A
401(k), group term life, a pension plan, a profit-sharing plan
— those are all qualified programs. Companies can set up
nonqualified plans that have
more risk to a participant.”
Communication is the key to
figuring out what your executives need, Holton says. Talk to
them and find out what they are
looking for and what their
expectations are for a corporate
life insurance policy.
“Younger people may like to
look at life insurance plans to
supplement their family needs
should something happen to
them,” Holton says. “Older
executives tend to look at what
their retirement needs are. We
tend to design plans that will
work both sides of that. That’s
the dovetailing approach. The
same financing vehicle will
help solve both issues.”
Communicating your life
insurance benefits also helps
meet a goal that every company has — attracting, retaining
and motivating employees.
“If it’s not communicated
properly and regularly, it’s the
kind of thing that can just get
forgotten and therefore not
appreciated as much,” Holton
says. “One of the most important things for any benefit plan
is to make sure you get the
mileage out of what it is you are
providing.”
This can be as simple as provide a statement to employees
at the end of each year that
spells out the benefits provided
by the company.
“Many times, they will not only
quantify the amount of that benefit, but they will also quantify
the cost that the company is paying for that benefit so that people appreciate what it is they are
getting,” Holton says. “That can
be done on their health insurance plan, their life insurance
plan and their retirement plan.”
Regular surveys can also provide helpful information.
“How do they feel about the
plan?” Holton says. “What’s in it
that they like, and what’s in it
that they don’t like? What would
they like to see that is not there?
We try to constantly make sure
that we’re bringing value in the
plan.”
HOW TO REACH: The Todd Organization, (216) 241-5600 or www.toddorg.com
Talk to your peers
Communicating with your
employees is important when
setting up life insurance policies
for them. But you should also
talk to other companies to find
out what their experience has
been in doing so, says Bill
Holton, principal with The Todd
Organization who specializes in
developing life insurance policies
for corporate executives.
“Most companies have or have
had somebody call on them,”
Holton says. “It doesn’t make
them good. Word-of-mouth is
best. But if there is somebody
they know that they can go to
that is satisfied with the
resource they are using, that
would be a good place to start.”
One mistake that companies
make is trying to layer plans
over one another instead of
melding the new program with
ones that already exist.
“They may be designing a plan
that is for a different purpose,
but again, they will use life
insurance as a vehicle there, and
they will just layer it on, and so
they end up layering programs
on top of each other,” Holton
says. “Look at all of them in total
and try to dovetail them so they
are not wasting money and not
putting additional dollars in for
the same purpose.”
HOW TO REACH: The Todd Organization,
(216) 241-5600 or www.toddorg.com
