the policy and retains all the benefits, tax-deferred cash growth and the potential tax-free death benefit. Now here's another scenario, should Mr. Jones decide to sell the company prior to Michael's retirement, the new owners will have a key employee to help in the transition of ownership and the retention of customers. Why would Michael stay? I would think it would be exceedingly difficult to walk away from these free benefits provided by Mr. Jones for Michael and his family. Plus, even though Mr. Jones sells his company, he still retains all the benefits of the policy. Unlike other retirement plans such as Simple IRAs, 401ks, and other qualified retirement plans, the cash value of the policy belongs to Mr. Jones and can be used as an emergency fund should a down business cycle occur, and the company’s cash flow is stressed. However, Mr. Jones should always repay any loans from the key-man life policy in order to meet his future obligations to this key employee. The following are some of the advantages of the Salary Continuation/Employee Retention plan: 1. The employer can be selective when choosing a key employee. Only the employer decides the participant. 2. No out-of-pocket expense to the key employee. 3. Optional vesting schedules. 4. Policy cash values are employer assets.
5. No government involvement. 6. Negligible plan administration.
7. Underwriting only requires an insurable interest in the key employee. 8. Unlike a Simple IRA or a 401k, there are no contribution limit or reporting requirements. 9. Tax-free liquidity. No stock market risk.
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