What it is:

  • For the executive … a plan for deferring income
  • For the corporation … an executive incentive plan using life insurance which has reduced effect on its current cash flow and surplus account

How it works:

Advantages:

  • Retain employer control of asset and plan
  • No IRS approval needed
  • May selectively favor one or more employees
  • Low-cost fringe benefit using life insurance tax leverage
  • Recruit new employees
  • Retain older employees
  • Accumulate tax free funds to pay benefits
  • Possible cost recovery or gain to employer
  • Defer current employee income taxes until benefit payout