How It Works
• The employer selects the executives to participate in the plan and enters into an
agreement with each that requires the employer to pay the premiums on a life insurance policy for as long as the employee continues employment with that employer.
• The employer treats the premium amount as a
compensation bonus to the executive, which is
tax deductible to the employer and taxable as
income to the executive.
• The employer may also agree to “gross up”
the bonus amount to the executive to offset the
income taxes when due.
• The executive has the opportunity to contribute an additional amount into the policy to help build cash value assets.
• Policy cash values may be used to supplement retirement income or other cash flow needs of the executive.
• Additionally, the company may incorporate a
Restrictive Endorsement, which provides a
retention element restricting the employee’s
access to the policy cash values until a specified date.