Deferred Compensation and Supplemental Executive Retirement Plans (SERP):
SERPs allow executives to defer part of their compensation until some later date, such as retirement. If you establish a SERP, your company may help fund a plan designed to provide your executives a defined benefit or defined contribution plan to include disability payments in the case of injury or illness limiting their working years. Taxes on the money accumulated may be delayed until received from these programs if properly designed.
Executive Bonus Plans or
Section 162 Bonus Plans:
Executives purchase a cash value (permanent) life insurance policy and your company bonuses the executive or key person the premium. These bonuses are, under current law, usually taxable income to recipients and tax-deductible to your company, but the cash value accumulates tax deferred until withdrawn.
Supplemental Disability is coverage in excess of the limited amount available through your group disability plan. Group plans usually allow benefits of 60% of salary but cap the monthly amount, such as $6,000/month, that can be received. Higher salaries may not be covered at a true 60% and a supplemental plan can make the coverage more equitable.
Key Person Disability
and Key Person Life
Key person disability provides payments to your company so that the disabled key person can continue to receive at least a percentage of their income during a disability period. This affords the company the money to hire a temporary replacement without heavily impacting cash flow.
Accidents are a leading cause of premature death and a Key Person Life Insurance policy, naming your company as beneficiary, provides additional tax advantaged funds, at pennies on the dollar, to help financially in such a traumatic time. This allows time for the survivors and key people in the company to either seek a qualified person take up the reins or find a suitable buyer. Sales under duress always puts the seller at a severe disadvantage. Such protection is especially important if you have family members or longtime employees who are dependent upon your company.