How to Design an Executive Benefit Plan That Pays for Itself
A resource for business owners, CFOs, and the advisors who serve them.
The most common objection to executive benefit plans is cost. “We can’t afford to fund supplemental retirement benefits on top of everything else.” It’s a reasonable concern—until you understand how COLI-funded plans actually work.
A properly designed executive benefit plan doesn’t cost the company money over time. It deploys capital that comes back.
The COLI Cost Recovery Model
When a company funds executive benefits through corporate-owned life insurance, the economics work in three phases:
Phase 1 — Premium Outlay (Years 1–15+): The company pays premiums into permanent life insurance policies on the executives’ lives. These premiums build tax-deferred cash value inside the policies. The cash value is a corporate asset on the balance sheet.
Phase 2 — Benefit Payout (Retirement): When the executive retires, the company accesses the COLI cash value (through policy loans or withdrawals) to fund the SERP or deferred compensation payments. The cash value that accumulated tax-deferred over the executive’s career is now deployed to meet the obligation.
Phase 3 — Cost Recovery (Death): When the insured executive eventually dies, the company receives the death benefit income-tax-free. This death benefit recovers the cumulative premiums paid, the benefit payments made, and in many designs, produces a net gain for the company. The total plan cost—over the full lifecycle—approaches zero or becomes positive.
Why This Matters for the CFO
The CFO evaluating an executive benefit plan should not look at the annual premium in isolation. The relevant metric is the net plan cost over the full lifecycle: premiums paid minus cash value accessed minus death benefit received. When modeled properly, this figure is typically near zero.
Compare this to the alternative: the cost of executive turnover. Replacing a senior executive costs 1.5–3x their annual compensation when you factor in search fees, vacancy costs, onboarding, and lost productivity. A $400,000 executive costs $600,000–$1.2 million to replace. The annual COLI premium to retain that executive is typically $40,000–$80,000—and the company gets that money back.
For Advisors: Bringing This to Your Clients
If you’re a CPA, attorney, or financial advisor working with business owners who are struggling to retain key executives, the COLI-funded executive benefit plan is one of the most compelling solutions available. It addresses the client’s retention problem, creates a tax-efficient benefit for the executive, and produces a net-zero or net-positive outcome for the company over time.
SSG Financial Group is available as a technical resource to model the plan economics, design the COLI structure, and illustrate the cost recovery timeline for your clients. We work alongside your advisory team—not in place of it. Schedule a 20-minute consultation to discuss how we can help.
Ready to explore executive benefit strategies for your company?
Schedule a complimentary 20-minute consultation with SSG Financial Group.
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About SSG Financial Group
SSG Financial Group provides integrated insurance and financial planning solutions for business owners, their executive teams, and their advisory partners. Our focus areas include executive benefits, wealth transfer, business transition planning, and ESOP repurchase liability funding.
