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Linus Linas Sudzius is a lawyer, speaker, former insurance company executive and author of the soon-to-be published book What Most Life Insurance Agents Won’t Tell You. (more about the author)

His law firm works with successful people on their estate planning, and with entrepreneurs on their business legal issues. When he’s not working he enjoys being with his family and listening to audiobooks.

Reach him at linas.sudzius@advancedunderwriting.com.


Life Insurance Owned by a Pension Plan


Business owners almost always want to pay for needed life insurance with deductible dollars. Contrary to popular belief, life insurance owned by the business does not allow the company to deduct the premium.

If a closely-held company’s pension plan can own insurance on the life of an employee or the business owner, it seems like an attractive strategy. The pension plan can pay for the needed personal insurance with pre-tax money, and the death benefits are available to support the family needs of the participant.

However, pension-owned life insurance is not for everyone, because the normal pension qualification rules apply:
  • All eligible employees must be included
  • The plan cannot discriminate in favor of certain employees
  • Related businesses must be aggregated together
  • A pension plan document must be implemented and kept up-to-date
  • Other strict administrative requirements must be observed

Having the pension plan pay for life insurance coverage is worth considering where
  • The employer has already implemented a pension plan that allows for the purchase of life insurance
  • The amount of coverage needed for the key employee is high
  • The coverage is needed for family income replacement
  • Estate tax inclusion is a less important consideration

What are the downsides? While using pre-tax money for needed coverage is desirable, pension-owned life insurance doesn’t solve everything.
  • There are relatively high costs of setup and implementation, especially if the pension plan does not yet exist or allow for the purchase of life insurance.
  • The participant must recognize an extra income tax result based on the annual term value of the policy’s death benefit.
  • The tax and practical cost of unwinding the coverage can be high.

For those instances where pension-owned life insurance is not a fit, business owners should consider instead
  • the simple purchase of needed insurance with personal money,
  • paying for life insurance under a bonus arrangement, or
  • using a life insurance based supplemental executive retirement arrangement.



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Aspire Financial Group has partnered with Advanced Underwriting Consultants (AUC)—and AUC’s founder Linas Sudzius--to provide tax and technical information designed to be helpful to our customers. This post is designed to help educate readers about general matters. If you need specific advice you can rely on, please consult your professional advisor.

Aspire Financial Group, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this web site is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisers regarding your particular set of facts and circumstances.

Steven J. Podgorski, LUTCF d.b.a. Aspire Financial Group, 1720 Crofton Drive, Algonquin, IL 60102
Mr. Podgorski is licensed to sell insurance products in Illinois

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