ERISA

In a fully insured plan the insurer assumes the risk of claims, while in a self-insured plan the employer assumes that risk and may purchase stop-loss coverage — In a fully insured group plan, the employer pays premiums to a licensed insurer, and the insurer assumes the risk of paying claims. In a self-insured (self-funded) plan, the employer assumes the claims risk directly and commonly buys stop-loss insurance to cap catastrophic exposure, often hiring a third-party administrator to run the plan. Because the employer bears the risk, self-funded plans are generally governed by ERISA rather than by state insurance regulation. This risk-bearing difference is the central distinction between the two funding arrangements.

National insurance concept

Deferred compensation funded with life insurance — In a deferred compensation plan, the employer promises to pay the executive benefits later, typically at retirement, and life insurance may be used to fund that obligation. The employer owns the policy, pays the premiums, and is the beneficiary; the policy's cash value builds tax-deferred to fund the future benefit. This differs from key person insurance, which protects the company against the death of a vital employee, and from salary continuation, which provides continuing pay to surviving dependents. Under split dollar, the employer and the employee or a third party share the policy's premiums and benefits.

National insurance concept