Blog #13: A New Look At An Old Idea

(Presentations were created using the InsMark Illustration System and Wealthy and Wise®.)

The Executive Bonus Plan funding a cash-rich life insurance policy has been a mainstay of executive benefit plans for a long time.  It’s highly rewarding to covered executives, easy to document, and simple to administer.

Unlike a Split Dollar Plan, it provides the employer with an immediate income tax deduction, and there are several variations that offset (or help offset) the covered executive’s income tax on the bonus.

Below are the five key variations, and InsMark can illustrate them all:

• Single Bonus – the executive’s cost is reduced to the income tax on the bonus.  In Blog #2, we discussed a unique way to use policy loans to cover the income tax.
• Gross-up Bonus – the executive’s cost is fully covered including the tax on the bonus.
• Graded Bonus – a combination of a single and a gross-up bonus are used.  A typical example might be a single bonus for the first, say, five years transitioning to a gross-up bonus starting in year 6.
• Leveraged Bonus – the employer loans the executive the funds for the income tax on the bonus.  In some cases, a further bonus is included which covers the loan interest due the employer.
• Controlled Bonus – a “new kid on the block”, this variation typically uses a single, gross-up, or graded bonus with provisions in the plan agreement that the bonus must be repaid to the employer if the executive terminates employment by a certain date (like within 10 years, 15 years or, perhaps, at retirement).  This variation is superior to split dollar in many ways.  Click here for comparison details of a Controlled Bonus Plan vs. a Split Dollar Plan.

Using special language in the documentation available from InsMark, there are also two sub-variations of each of the five options shown above.  One gives the executive full access to policy cash values at any time.  The second contains a provision restricting the executive’s access to cash values until a certain date – – like retirement.

InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)

We created Referral Resources to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice. You can utilize your choice of insurance company, there is no commission split, and you don’t have to change any current relationships. They are very familiar with running InsMark software.

Please mention my name when you talk to a Referral Resource as they have promised to take special care of my readers. My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.

Save time and get results with any InsMark illustration.  Contact:

• Ben Nevejans, President of LifePro Financial Services in San Diego, CA.

Note: If you are an Independent Marketing Organization that is interested in becoming an InsMark Referral Partner, please contact Julie Nayeri or David Grant at the number or email address indicated in the paragraph that follows.

The illustration module for the Leveraged Bonus is in InsMark’s Leveraged Compensation System.  The illustration module for the other four Bonus Plan illustrations noted above are in the InsMark Illustration System.  For a license to use either of these Systems, use those links or contact Julie Nayeri at InsMark at julien@insmark.com or (888) InsMark (467-6275).  Institutional inquiries should be made to David A. Grant, Senior Vice President – Sales at (925) 543-0513 or dag@insmark.com.

More Recent Articles:

Blog #12: Three Smart (and relatively unknown by clients) Tax Strategies for Retirement Accounts

Blog #11 – Your Often Dead Without Deadlines

Blog #10: Annuity Rescue Made Easy

Blog #9: Selling Incognito

Blog #8: The Pothole in Wealth Management, Good Logic vs. Bad Logic™

3 Reasons Why It’s Profitable For You To Share These

Blog Posts With Your Business Associates and

Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive