Business-owned life insurance: Handle with care

Description

Abstract: Business-owned life insurance serves a number of legitimate purposes, including succession and estate planning. A big advantage of using life insurance is that the proceeds typically are tax free. But there have been abuses, particularly by large companies that purchased insurance on the lives of lower-level employees, often without their knowledge. Indignation over these so-called “janitor policies” led Congress to add Section 101(j) to the Internal Revenue Code (IRC) as part of the Pension Protection Act of 2006 (PPA). This article explains that, even though this provision is intended to prevent abusive employment practices, it’s broad enough to encompass life insurance used to fund a buy-sell agreement or for other estate planning purposes.