The term "death benefit" may be one of those oxymorons that can only arise in the business world, but FASB has decided that, certain "death benefits" provided to employees should be recognized as expenses while the employees are working. The reasoning for this, consistent with accounting rules for such items as pension and postretirement health care benefits, is that is the time frame during which the company is benefiting from the employee's service – generating revenue and otherwise carrying on its operations. The fact that the payment won’t be made until after the employee leaves the company doesn't change this fact.
Beginning in 2008, companies using "split-dollar life insurance" policies (i.e., those under which both the company and the employee's beneficiary receive a portion of the death benefit) will be required to, estimate the premium payments to be paid on the policy following the employee's retirement. The portion of this amount that relates to the death benefit to be paid to the employee's beneficiary will then need to be recognized as expense, on a present value basis, during the employee's remaining expected years of service to the company.
Your insurance company should be able to help you determine the portion of the company's premium payments that relates to the death benefit to be paid to the employee's beneficiary.
For more information, please contact Tracy Harding at 207-991-5114 or email Tharding@bdmp.com.