Remember, most business owners can use qualified plans to reward their key employees; however, there are limitations to this because what one does for one employee he must also do for another. That is why an individual permanent style life insurance policy is an attractive feature, or the non qualified deferred compensation plan (or NQDC). This is an agreement between the employer and the key employee in which they agree to pay the employee an additional retirement plan at a future date.
Employers can choose to reward and give an individual employee his own benefit level. Two common NQDC plans are salary deferred and supplemental executive retirement plans, commonly called SERPs. Under salary deferred plans, the key employee agrees to defer some portion of his pre-tax compensation from his salary or bonus and is immediately vested in his contributions. Some win-win scenarios for both employer and employee are:
1. typically, you see high first year cash value life plans
2. there is underwriting flexibility with guaranteed issue and simplified issue, depending on the number of lives involved
3. full underwriting, down to one life
4. portable contracts
5. the policies can be guaranteed whole life or universal life policies.
Another way for an employer to offer small business owners benefits is through what are called executive bonus plans (remember what employers can do with a bonus). This is also referred to as a section 162 bonus plan. The employer pays a bonus to an employee in an amount equal to the annual premium on the life insurance policy for that person. The individual becomes the owner of the policy and has the right to name a beneficiary on the policy. The employee can access the cash value at retirement age through tax free loans and withdrawals to help supplement his retirement income. Typically executive bonus plans work for clients who don’t care much about “golden handshakes” while REBAs allows business owners to incentivize key employee(s) to stay with the company.
When employers pay a covered employee a bonus sufficient to cover the life insurance premiums, the employer may increase the bonus to also cover the employee taxes (a double bonus). For all of your Business Life Insurance needs contact Newsad Insurance Services, serving Middletown, Monroe, Lebanon, Hamilton, Trenton, and Oxford. Tom Newsad is a 3 year Million Dollar Round Table Qualifier. Contact him at www.newsadinsurance.com.