Benefits to the Employee and Employer

Benefits to the Employee

• Employee owns the policy, so it is portable if he or she terminates employment.
• The death benefit is income-tax-free.
• The employee's income tax liability for additional compensation can be met by borrowing or withdrawing policy cash values (with a reduction in death benefit and possible tax consequences), using policy dividends (if any), or taking an additional bonus from the employer.
• The employee can use the cash value of the policy to, among other things, supplement retirement income (with a reduction in death benefit and possible tax consequences).

Benefits to the Employer

• Salary or bonus used to pay premiums represents an ordinary and necessary business expense of the employer, and, to the extent compensation is "reasonable" in the aggregate, is tax-deductible under Section 162.
• The arrangement does not have to be prequalified by the IRS, nor is it subject to annual reporting and disclosure rules.
• There are no annual administrative costs.
• The employer may freely select the employee(s) it wishes to benefit and vary the benefit among the participating employees.