KEY EMPLOYEE INCENTIVE

Doesn’t anyone stay in one place anymore?” — Carole King

Hello friends,

The labor market has shifted dramatically. Employees now have more options than ever, and many don’t remain in the same role for long. This presents a real challenge for business owners—especially when they’ve found one or more key employees who significantly contribute to the company’s success.

The result is a robust “KEY EMPLOYEE INCENTIVE” strategy.

Here’s a detailed breakdown to help retain those valuable team members for a defined period:

• Purpose

To create a mutually beneficial incentive that encourages a key employee to remain with the company for a specified number of years.

• Funding

The employer funds a permanent life insurance policy (Whole Life) over an agreed term—say, 10 years. The employer owns the policy, and the employee is the insured. The incentive is awarded only if the employee completes the full term.

• Cash Values

During the term, the employer can access the policy’s cash value to support business needs such as inventory, vehicles, or other expenses.

• Death Benefit

Through a Split Dollar arrangement, if the employee passes away before the term ends, the death benefit is divided equally between the employer and the employee’s beneficiaries. This ensures the employee’s family receives support, while the employer has resources to recruit and train a replacement.

• Policy Transfer

At the end of the term, ownership of the policy transfers to the employee. The policy is fully paid up, so no further premiums are required. The employee remains permanently insured, and the cash value continues to grow—available for use as they see fit.

• Taxation

Upon transfer, the policy’s cash value becomes a taxable event for the employee. The employer may deduct all premiums paid during the term. To simplify things, the employee’s tax obligation can be paid directly from the policy’s cash value at the time of transfer.

This incentive structure benefits everyone involved—providing security, flexibility, and long-term value. If you’d like to explore how this strategy could work for your business, I’d be happy to discuss it further.

Make an appointment, and I will be happy to discuss this subject with you.

Thank you for reading.

Warm regards,

Roberto Medina