How does this strategy work?

The employer can offer a permanent life insurance policy to certain key employees.  The key employee owns the policy and the cash value and can select a beneficiary to receive the life insurance benefit at his or her death.  The employer pays the policy premiums as a bonus to the employee.  The bonus is taxable to the employees and income tax-deductible to the business if the compensation is reasonable.  The employee can use the cash value for retirement and the life insurance protection for his or her family.

Strategy in action - while a key employee is living

• The employer pays the policy premiums and receives a current income tax deduction, provided the compensation is reasonable.
• The key employee includes the amount of the premiums paid by the employer as gross income.
• The key employee can potentially receive income tax-free withdrawals and loans from the cash surrender value – using that money for retirement or other purposes.¹