Retaining MVPs with Executive Bonus Life Insurance

On the whole, American workers have endured frozen wages and less generous benefits since 2009. At the same time, many of them have been asked to shoulder heavier workloads. This may help explain why more than one-third of employees are hoping to find new jobs in the next 12 months.1

An economic recovery is likely to bring more job opportunities for top performers, and it could prove costly for businesses to replace productive employees who decide to leave. An executive bonus plan funded with cash-value life insurance can be used to reward and retain your most valuable employees.

This type of incentive may appeal to employees who worry about how they will provide for themselves and/or their families in the future. The good news for business owners is that an executive bonus plan may be more flexible than other executive benefit plans.

  • The business pays the premiums with bonuses that are tax deductible to the employer but taxable to the employee. The company decides when to pay the bonuses, so it can control the timing of the expense. Plans may include certain restrictions and vesting requirements that could make the life insurance policy more valuable for an employee who stays with the company.
  • The employee owns the policy and also bears the responsibility to keep it in force. He or she is free to borrow against and sometimes withdraw from cash values to supplement income, to pay tuition for college-bound children, or for any purpose. If the policy is in force at the time of death, the employee’s named beneficiaries will receive the death benefit, minus any outstanding loans, free of income taxes.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that the individuals for whom you are purchasing the policies are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

1) USA Today, March 28, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.
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