Risk Management


  1. Homework Assignment.
  1. Your assignment is:
  1. Prior to our next class go to the internet, find the documents listed below and read them.  Use these to start your research.  If you google “life insurance in a qualified plan” or phrases similar to that you will get lots of choices.  The folks in the library on the top floor of this building can also help you swiftly and easily find lots of articles which will help you do this assignment.  This paper will be worth 50 points and you have until the beginning of class on Thursday, October 6, 2016 to turn it in.
  1. Prepare a paper which does two things:
  1. It describes under what circumstances a qualified plan should include life insurance.
  • It describes under what circumstances a plan should not include life insurance.
  1. Places to start:
    1. www.lifehealthpro.com/2010/02/01/life-insurance-in-a-qualified-plan.
    1. Find an article written by Elizabeth A. LaCombe, Esq. of the Crevier & Ryan LLP law firm titled: “Life Insurance in Qualified Defined Contribution Plans.”

www.thinkadvisor.com.  Look for an 8/18/14 article titled “Using qualified plan dollars to buy life insurance

The paper requires an intro and a conclusion


Risk Management and Insurance

Life insurance and retirement benefit plans are core aspects of the labor and employment sector. They offer financial protection and are often prioritized by governments, businesses, and employees. This paper seeks to outline the difference between qualified and non-qualified plans and their compatibility with life insurance covers. For instance, Individual Retirement Arrangements (IRAs) are not considered as qualified and thus, do not allow for life insurance as a form of investment. Further, loopholes are analyzed to determine the most efficient ways of investment in such instances. The paper also examines the investment and contribution implications to the employer/ business and the employee. A qualified plan’s inclusion of a life insurance policy is determined by the structure of the plan and its adaptability to pre-set conditions. Non-qualified plans are flexible and function based on tailor-made criteria. Accordingly, it is imperative to analyze the various circumstances under which retirement plans should include or exclude life insurance.


Qualified plans are defined or structured benefit plans in which contributions are not taxed until money is withdrawn after the maturity or expiry of the pre-set period. Most retirement schemes provided through employment are categorized as qualified plans. Common examples of qualified plans include 401(k), profit-sharing plans and cash balance plans. IRAs are not categorized as qualified plans and therefore, cannot include life insurance (Magnuson 3). Notably, even though IRA contributions cannot be used to purchase life insurance, the money obtained from the maturity of an IRA plan can be invested into a qualified plan in the form of life insurance.

Although whole life insurance has traditionally been the most common type of plan, Universal Life (UL) plans have gained more popularity owing to their functional advantages. They place less regulation on the division of the retirement scheme money between a life insurance policy and other investments. These plans often bear more long-term advantages to business owners than their traditional variants.

A fully-insured plan serves the individual employee in many advantageous ways. For instance, it is held by a single insurance company and is portable, enabling an individual to move from one organization to another (Magnuson 3). However, employees tend to shy away from this plan when faced with the prospect of contributing to death benefits. On a long-term scale, though, many employers and employees prefer this plan because it serves them equally and offers life protection coupled with diverse investment options. In comparison, while the advantages of a tax-free benefit are approximately the same as those of a non-qualified plan, the latter offers a shorter period for paying premiums, thereby outperforming the final value and expense of the non-qualified plan.

Similarly, non-qualified plans belong to the tax-deferred retirement category. However, they differ in the sense that they are not regulated by the employer’s retirement security rules. The basic forms of non-qualified plans include deferred plans, executive plans, split plans, and group plans. All of these plans are exempt from the restricting characteristics of a qualified plan and are popularly used for key employees as a form of compensation or entry into partnership. Therefore, they are greatly regulated by the individuals involved and allows for the direct contribution from salary or direct contributions by the individual (LaCombe 36).

Lastly, IRA plans do not include life insurance because of the rigid requirements that make contribution and withdrawal from these schemes extremely difficult. In most cases, direct contribution to IRAs is not allowed except in the case of a few employees with extremely high salaries. Therefore, sustainable accumulation in such a plan is made difficult because of the low and defined annual contributions. In such situations, a life insurance plan cannot be applied to this plan as it would be of little financial advantage. Instead, such a plan should be applied to arrangements that allow funding through annuities and insurance contracts.

Contemporary insurance and retirement plans continue to offer new diverse options that address the restrictions imposed by traditional regulations. As insurance and retirement regulators seek to develop different plans that offer long-term suitability to the business and the employee, they must take time to find resourceful knowledge on different plans. A qualified plan coupled with life insurance offers financial and social security for employees while a non-qualified plan, which is essentially funded with cash-value life insurance policies, provides extra compensation and security. It is imperative to synchronize specific needs and labor characteristics with a holistic plan that will be of value to the individual on a long-term basis.

Works Cited

Lacombe, Elizabeth. Life Insurance in Qualified Defined Contribution Plans. Journal of Pension Benefits, 15.2. (2008): 30-35. Web.

Magnusson, Bill. Life Insurance in a qualified plan. Life Health Pro. 2010. Web.

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