For many small business owners, group term life insurance is a popular employee benefit because it is relatively inexpensive, especially when a company has many younger, lower-paid employees. In addition to low cost, the premiums for $50,000 of group term life insurance coverage are fully deductible to the company.

But when older, more highly paid executives are thrown into the mix, costs can rise because term insurance premiums are higher for older individuals. If a group life insurance benefit is based on multiples of income, this can further increase the employer's cost because only the first $50,000 of coverage is fully deductible.

Rising group insurance costs and limited deductibility place many small business owners in a precarious situation. Executive group 'carve-out' is a cutting edge strategy that allows employers to control the costs of a group term life insurance plan, receive full deductibility for expenses, and maintain their company's competitive and recruiting edge.

Group term insurance coverage for older, highly paid employees that exceeds $50,000 is ''carved out'' of the existing plan. In return for the ''carved out'' portion of term insurance coverage, those employees are given a permanent, cash value life insurance policy. The employee owns the new insurance policy. The employer provides the employee with a bonus, which is used to pay policy premiums. The bonus to the employee is fully deductible to the employer.

In most cases, the premiums on the cash value policy will generally remain level. The only cost increases for the employer are those from the $50,000 term insurance portion of the group coverage. Because the employee owns the cash value life insurance, its benefits will not cease at retirement. As long as the premium is paid, the policy can provide life-long death benefit protection and cash values that the employee can use to supplement a variety of financial needs.