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Unique Benefit Plans

by Tom SmithSeptember 29, 2016 8:00 AM

Are you a business owner looking for additional ways to compensate and retain your key employees? There are several options that are mutually beneficial for employees and businesses.

I’m going to preface this blog with the fact that I was born and raised in Ohio and am therefore an Ohio State fan. I was on ESPN’s website the other day and came across a story about the “school up north” and their Head Coach Jim Harbaugh getting additional compensation in the form of a life insurance loan.

The story caught my attention because you don’t see articles like this too often, especially when you are looking to read about sports. The fact is, it is commonplace in the corporate world for businesses to offer additional benefits to key executives and/or employees. The agreement that the University of Michigan and Jim Harbaugh have entered into is called a split-dollar life insurance arrangement. These types of arrangements can be a win-win for the employer and employee.

Image of Jim Harbaugh. Contact GMS about unique benefits plans for employees.

Photo by Eric Upchurch via Wikimedia Commons.

A Win-Win Situation 

Michigan is able to offer Harbaugh a phenomenal benefit at virtually no long-term cost. The university is loaning him money to pay the insurance premiums, but they will eventually recoup their investment. It will happen either through the death of Jim Harbaugh or the surrender of the policy. There is an opportunity cost to all of this, but at some point in time, Michigan will get their loan payments back. In the process, they get to establish good will with this key employee of theirs.

Harbaugh benefits by receiving great life insurance policy at a fraction of the cost he would pay outside of this agreement. He will eventually have to report an economic value on the money Michigan is loaning him come tax time. He will have to pay taxes on this value, but that is less expensive than him funding the policy out of his own pocket. 

As mentioned in the article, Harbaugh has the ability to borrow from the policy while he is still living. The money he borrows is tax-free income; however, he cannot borrow more than 150 percent of the value of the premiums. The reason for this is Michigan wants to make sure they get their investment back. If Harbaugh borrowed too much and passed away, they wouldn’t recoup all of the premiums they loaned him. For Harbaugh, the real benefit is that this protects his family while he is coaching in the event that he passes away and there is a stoppage of income. At the same time, the policy offers the potential to act as a supplemental retirement income stream of money in the likely event that he is living into his retirement. 

Unique Benefits Plans for Businesses

This type of arrangement does not work for every business, but there are multiple options for how these types of products can be designed and funded. Benefits like this exist to attract and retain great employees. GMS has partnered with insurance consultants in order to offer these same types of executive benefit plans for their employees. Contact GMS today if you are interested in learning more!

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