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