Most producers are aware that whole life insurance has been a traditional funding vehicle in defined benefit plans but there are also instances when it can be a smart choice in profit sharing plans. A little review is in order. Life insurance is considered an “ancillary benefit” and can be put in qualified retirement plans as long as it is “incidental” to the main purpose of the plan – which is providing retirement benefits. This means there are limits on the amount of life insurance that can be put in the plan. In a profit sharing plan whole life insurance premiums are limited to 49% of the employer contribution. From a practical standpoint insurance is generally limited to no more than one third of the plan contribution to maintain the contribution flexibility of the profit sharing plan design since the life insurance premiums will be a required contribution each year. 25% to insurance is frequently used in profit sharing plans. Here are a couple of situations when it may be appropriate to discuss the use of life insurance in a profit sharing plan. Owner only or owner and spouse businesses – especially for younger owners where a profit sharing design makes more sense than a defined benefit plan. Significant amounts of life insurance can be generated for younger owners who may be “insurance poor” at this stage of their careers. Growing businesses – in addition to benefiting the owners life insurance can also provide a valuable employee benefit for a profitable business to attract and retain employees – providing both life insurance and retirement benefits under one plan. And let’s not forget all the other reasons that owners and professionals consider putting life insurance in pension plans – they apply to profit sharing plans too! • Tax deductible premiums • Tax free death benefits • Insurance Portability • Retirement plan assets protected from creditors • Larger pre-retirement death benefits • Possible exclusion from estate tax So just be aware that life insurance may be an option in some profit sharing plan situations – the key element to successfully including life insurance in a profit sharing plan is that the owner understands there will be some loss of contribution flexibility as the life insurance premiums must always meet the “incidental” test which will require ongoing profit sharing contributions – but then isn’t that the reason they started the plan?