When A Little Excess Can Be A Good Thing.
Life insurance is a key tenet of any individuals financial planning strategy. At News Corp all benefits eligible employees have access to a basic life insurance policy provided by the company and the ability to purchase additional levels of cover. For many employees this would be our Supplemental Term Life Insurance products through MetLife. However for employees whose earnings are $180,000 and higher your life insurance offerings are through a special vehicle called Group Variable Universal Life Insurance (GVUL). A little known facet of our GVUL plan – is the fact that in addition to the premium you pay each pay period for the underlying life insurance, you can also contribute what is referred to as “Excess Premium.” This is an amount of after tax dollars contributed to this policy that is more than what was needed to pay for your actual life insurance.
Why contribute more than my premium for the policy?
Every dollar of excess premium you contribute is invested in an account for you under this policy. You can select from a range of mutual fund investments to have your savings grow over time. Any earnings, or trades that take place while your money is under this life insurance policy are not taxable to you. So no 1099-DIV, or 1099-INTs would be issued at year end. Your money grows on a tax free basis. When eventually you wish to withdraw these funds you will be taxed for capital gains on the difference between the amount you originally contributed (the principle) and the amount you are withdrawing. However – before that capital gains tax is assessed – your tax obligation is reduced by the amount you have paid under this policy for the actual life insurance.
To put together an overly simplistic example it works like this:
If you paid $8,000 over the course of this policy for life insurance premiums. And you contributed another $10,000 in excess premium. The $10,000 in excess premium would have been invested in an account for you. Let us say over that time it has earned $5,000 in investment gains. So you now have $15,000 in that account and you choose to withdraw it. Before you are taxed on your $5,000 in earnings the policy would see that you had already spent more than that on the actual life insurance ($8,000 per the above). Therefore you would owe no capital gains tax.
Interested? See this article on how to enroll and contribute excess premium to your account.