Offering a deferred compensation program to key employees using life insurance (Variable Universal Life, or Index Universal Life) can usually be a very expensive endeavor. Luckily, there is now a more affordable option available. Normally, on a life insurance policy that does not generate any cash value, I would not recommend it be used for Non-Qualified Deferred Compensation. However, there is a particular type of Guaranteed-No-Lapse Universal Life Insurance that offers a “Cash-Out Rider”.
This policy can allow your company to provide your employee’s family guaranteed death benefit protection at lower prices than a typical variable UL or index UL policy, all the while retaining the “Cash-Out” option which can pay a return of premiums after specified periods of time. A partial return of premiums is after 15 years, and a full return of premiums is after 20 and 25 years, (subject to the death benefit cap – in years 20 & 25 the return of premium must be no more than 65% of the death benefit). That way, the employee’s family is provided death benefit protection and then, if it is not needed after 20 or 25 years, the company may surrender the policy for its “Cash-Out Value” and use that return of premiums to provide the employee an additional cash bonus.
For more information on this type of policy, and to find out if this deferred comp plan strategy can benefit your company, please contact us for a brief consultation.
For a free consultation, please contact us for an appointment.
*This blog is strictly the opinion of Michael A. Malleo and not those of
ASH Brokerage Corp., nor any of our affiliates.
Malleo Financial Services LLC cannot and will not give any specific tax or legal advice.
Please consult your tax professional or legal professional for such advice.