When retirement benefits are to be informally funded from the policy’s cash values, the policy on the Key Employee’s life is targeted to contain the amount of cash values required. Alternatively, the Employer pays the retirement benefits to the Key Employee from its current earnings and recoups these benefits cost from the ultimate life insurance death benefits. What does all this mean to the Key Employee and his/her family and to the owner of a business? Let’s say that Mr. Jones is the owner of a business with fourteen employees who manufacture widgets. Michael Doe, age 44, has been a key employee since the start-up of Mr. Jones’s widget company and has all the knowledge and experience of Mr. Jones. What would be the consequence should the business lose Michael to a competitor, or should he decide to leave Mr. Jones and try his hand at making widgets in his own company? Would Mr. Jones’ matching contributions to Michael’s 401-K or Simple IRA deter Michael from leaving his company? Usually not, and Michael takes all the vested money with him. What can Mr. Jones and other employers do to prevent key employees from leaving their company? Suppose Mr. Jones purchases a well-designed, high-grade, permanent life insurance from a highly rated, US- based life insurance company with an industry-recognized financial AM BEST rating of A+ Superior and a Comdex of 96 out of 100. Mr. Jones would be the owner and the beneficiary of the policy. HOW ABOUT HAVING A CONVERSATION? SCHEDULE AN APPOINTMENT. At this point, Mr. Jones shares with Michael that if he should remain employed and in good standing with the company until age 66, he will give Michael a couple of options: On Michael's 66 birthday, he would have the option of receiving a bonus check of $30,000, or he could choose to receive a taxable retirement compensation of $35,000 annually for ten years. And should Michael die during this 22-year time period, in the event Michael should leave the company prior to age 66, Mr. Jones owns
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