Which option is commonly used to informally fund a deferred compensation plan?

Which option is commonly used to informally fund a deferred compensation plan?

• A. Corporate-owned term life insurance
• B. None of these options are used.
• C. Corporate-owned cash value life insurance
• D. Corporate-owned mutual funds

Answer: (C)

The answer is supported by the fact that corporate-owned cash value life insurance is often utilized as a vehicle to informally fund a deferred compensation plan. This is because cash value life insurance not only provides death benefit protection but also accumulates cash value over time, which can be accessed by the corporation to fund the deferred compensation obligations. This arrangement allows companies to leverage the cash accumulation for various financial strategies while providing a safety net for the deferred compensation promises made to employees. In contrast, corporate-owned term life insurance typically does not build cash value and is purely a protection instrument, making it less suitable for funding deferred compensation plans. Mutual funds, while they can be a component of an investment strategy, do not provide the same guarantees or benefits associated with life insurance in this context. Therefore, the most direct correlating option for funding a deferred compensation plan is corporate-owned cash value life insurance due to its unique features that align with the financial management requirements of such plans.

The answer is supported by the fact that corporate-owned cash value life insurance is often utilized as a vehicle to informally fund a deferred compensation plan. This is because cash value life insurance not only provides death benefit protection but also accumulates cash value over time, which can be accessed by the corporation to fund the deferred compensation obligations. This arrangement allows companies to leverage the cash accumulation for various financial strategies while providing a safety net for the deferred compensation promises made to employees.

In contrast, corporate-owned term life insurance typically does not build cash value and is purely a protection instrument, making it less suitable for funding deferred compensation plans. Mutual funds, while they can be a component of an investment strategy, do not provide the same guarantees or benefits associated with life insurance in this context. Therefore, the most direct correlating option for funding a deferred compensation plan is corporate-owned cash value life insurance due to its unique features that align with the financial management requirements of such plans.