Old-Case Study: Golden Handcuff

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Case Study: Golden Handcuff for Key-Executive

The Need:

  • The manufacturing company had just lost one of their key-executives to a competitor.  They wanted to create an incentive to increase the likelihood that their second key-executive remains for at least the next 10 years.

Plan Implemented:

  • $4,900,200 of institutionally-priced Corporately-Owned Life Insurance (COLI) on the key-executive
  • Agreement between corporation and executive regarding insurance benefits during plan and bonus at completion of service
  • For your review: NAIC compliance illustration

Benefits to Corporation:

  1. Immediate balance sheet enhancement
  2. Increased yield relatively to similarly liquid corporate assets
  3. Tax-free access to yield
  4. Access to $750,000 on a tax-free basis to compensate the executive; tax-deduction of benefit paid at that time
  5. Cost-recovery at plan maturity

Benefits to Executive:

  • Ability to name personal beneficiary for $1,500,000 of life insurance during the agreement at minimal cost
  • $750,000 contractually guaranteed bonus at the end of 10 additional years of service