Survivor benefits are typically designed to be equal to the executives deferred compensation account balance. Occasionally, an enhanced survivor benefit will be delivered (assuming that the corporation is using COLI for funding purposes) which can be defined, for example, as the greater of 40% of an executive’s cumulative deferrals paid for 10 years discounted at 9% or their account balance.
An easier approach that gets one to the same figure is to define the survivor benefit as the greater of 2.5 times an executive’s cumulative deferrals or their account balance.
All survivor benefits are paid directly by the corporation and considered taxable income to the executive’s beneficiaries and deductible by the corporation upon payout.
The executive’s elections regarding his or her beneficiary and the form and timing of his or her survivor benefits may generally be changed at any time prior to death.