The Questions No One Asks About Life Insurance in a SERP

Life insurance is one of the most common tools used to fund supplemental executive retirement plans. And in many cases, it works as intended. The tax treatment is favorable. The structure is flexible. The economics can be sound.

But there’s a difference between can be sound and is sound, and that difference lives inside the details most people never examine.

The Problem Isn’t the Product

When a life insurance-funded SERP underperforms, the instinct is to blame the product. The IUL didn’t deliver. The whole life dividends dropped. The carrier changed the caps.

But in most cases, the real issue started earlier, at the point where assumptions were accepted without pressure, costs weren’t quantified, and no one asked how the proposal would hold up if conditions changed.

The product didn’t fail. The diligence did.

What Gets Missed

Most conversations around life insurance in a SERP context follow a predictable pattern. An advisor presents a proposal. The numbers look reasonable. The tax benefits and retirement income are highlighted. The conversation moves to implementation.

What rarely happens is a serious examination of what’s underneath the proposal: the assumptions driving the numbers, the costs embedded in the structure, and the insurer’s ability to sustain the performance being projected.

That’s not because the people involved are negligent. It’s because the right questions aren’t being asked, and in many cases, the people responsible for the decision don’t know what those questions are.

The evaluation stops at the proposal. What’s driving the numbers usually goes unexamined.

A Few Questions That Change the Conversation

You don’t need dozens of questions to pressure-test a life insurance recommendation. You need the right ones. Here are a few that tend to separate a transparent conversation from a surface-level pitch.

What is the end-of-year 1 cash surrender value assuming a 0% return or no dividends being credited?

This is a simple question with a revealing answer. It forces a clear look at how much of the initial premium is consumed by costs before the policy even has a chance to perform. If someone resists answering it or deflects to long-term projections, that tells you something about how comfortable they are with the economics of year one.

What are the total lifetime costs of this policy, expressed as a percentage of premium and as a drag on return?

Most illustrations show premium in and cash value out. What they don’t show clearly is the cumulative cost sitting between those two numbers. Framing costs as a drag on return, not just a line item, puts them in terms that finance professionals actually use to evaluate any other asset or strategy.

What typically goes wrong with these policies over time?

This one is disarmingly simple, and it’s the question most likely to expose whether someone has real experience or is working from a script. A thoughtful answer identifies the actual risks: overly optimistic assumptions, underfunding, rising costs, carrier changes. A weak answer sounds like: “They don’t go wrong if they’re designed and serviced properly.”

What elements of this policy can be changed by the carrier after purchase?

This gets at one of the most misunderstood aspects of life insurance. Many of the variables that drive performance, including caps, cost of insurance charges, participation rates, and dividends, are not permanently locked at issue. They can be adjusted over time, and carriers have exercised that discretion. Understanding what can move, and how it has moved historically is essential to evaluating the real risk profile of the structure.

How do the insurer’s earnings compare to what it credits back to policyholders?

This moves the conversation from product to platform. At the end of the day, the policy doesn’t perform in a vacuum. It performs based on what the insurer earns, what it keeps, and what it passes through. Understanding that relationship, and how that margin supports expenses, mortality costs, and capital, matters because the policy is only as strong as the insurer behind it.

Why This Matters for Organizations

For a health system, a credit union, a university, or any organization committing significant capital to an executive benefit program, the decision to use life insurance as a funding vehicle is a balance sheet decision. It carries real financial exposure, real assumptions about future performance, and real consequences if those assumptions don’t hold.

That doesn’t make life insurance the wrong choice. It makes it a choice that deserves the same rigor applied to any other institutional commitment: clear assumptions, transparent costs, quantified risk, and honest answers about what can change.

The Standard Should Be Higher

The executive benefits industry has operated for a long time on a model where the proposal is the conversation. That’s not good enough for the organizations making these decisions, and it’s not good enough for the executives whose benefits depend on them.

A well-designed life insurance strategy can absolutely deliver. But “well-designed” should mean more than “well-illustrated.” It should mean the assumptions are realistic, the costs are understood, the risks are quantified, and the insurer’s ability to sustain its performance has been independently evaluated.

That’s not a higher bar. That’s the right bar.

Want to see the top 25 questions that can change the conversation? Let’s talk.