How it works
Term life and contribution DI, with no additional cash outlay
Bought on their own, $1,000,000 of term coverage priced at $1,000 a year takes about $1,429 of an employee's pre-tax pay. Through the 401(k), the same coverage costs about $596 in year one.
The employee keeps spending the $1,429. The $833 difference stays in their paycheck, $583 after tax: about $400 a year pays for a Retirement Plan Contribution DI, after tax, and the rest goes into a savings account that covers the premium to 65. If they become disabled, the carrier pays $7,500 a year into the 401(k) until 65.
Life coverage and retirement protection, for the same dollars they'd spend on term alone.
Hypothetical example. Assumes a 30% tax rate, 10% unisex savings, an employer match of 100% of the first 3%, carrier REB rates, a $400 DI premium paid after tax, and a $7,500 annual 401(k) contribution growing at a hypothetical 6% in the disability example. The REB is taxable each year and rises with age, so savings decline in later years. The plan must permit life insurance. Results will differ. Advanced Insurance Brokerage does not provide tax or legal advice.
