Retaining Key Executives with a Life Insurance Bonus Plan
The high unemployment rate is no doubt helping to reduce turnover, but research shows that more than 20 percent of workers want to switch jobs as soon as they can. 1)
Obviously, there's not much value in trying to hold on to unhappy workers, but chances are good that there's at least one key player who helps make your business profitable and might be expensive to replace. The cost of recruiting and training a replacement, plus any lost productivity resulting from the turnover, could add up to three times the position's annual salary. 2)
Once a key executive has a good offer, it's often too late to prevent his or her departure. But an executive bonus plan with cash-value life insurance can create incentives to stay put.
Here's How It Works
The business contributes to the premiums with a bonus that is tax deductible to the employer but taxable to the employee. The business decides when to pay the bonus, which allows the company to control the timing of the expense. Plans may include restrictions and vesting requirements, which may make the policy more valuable if the employee stays with the company.
The employee owns the policy, selects the beneficiaries, and is free to withdraw the accumulated premiums and any cash value for any purpose. If the policy is in force at the time of the insured's death, the beneficiaries will receive the death benefit, minus any outstanding loans, free of income taxes.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that the individuals for whom you are purchasing the policies are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
1–2) Kiplinger.com, January 25, 2010
This article is provided by Muzette L. Charles. Please be advised that it is not intended as legal or tax advice. Muzette offers securities, annuities and insurance products through AXA Advisors, LLC (member FINRA, SIPC) and its affiliate, AXA Network, LLC and its subsidiaries. Contact her for a no-obligation review on Retirement, Investment, Life & Long-Term Care Insurance Planning for Individual or Employer Group Plans & Seminar Speaker at 201-592-2501 or www.muzettecharles.com
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