IBC and 'Key Person and Executive Bonus' Insurance Planning

Posted as written by Richard Weizeorick (May 2012) - MTL Financial Group Life Success and Legacy can help your business plan for key person life insurance via the use of Infinite Banking Concepts (IBC) as taught by Nelson Nash in Becoming Your Own Banker. How does a business protect its assets? Normally when you ask this question, most people think about the building, office equipment, supplies and salable material, so the answer is by purchasing fire and casualty insurance. But what if the assets are the people who keep the business running on a day-to day-basis? These are the people whom the business relies on to make the management decisions, handle the finances or have that special rapport with customers and creditors - a key person. Definition A key person is usually a highly paid employee or owner who is responsible for management decisions, has a significant impact on sales, and has a special rapport with customers and creditors. If the key employee should die suddenly, the business would suffer a loss of the person's management skills and experiences, and loss of sales and missed business opportunities. In some cases, his or her death could even cause credit difficulties, including missed payments, deposits or a creditor's reluctance to extend credit. How it Works Key person life insurance is a life insurance policy purchased and owned by the business, on the life of the key employee. Upon the death of the key employee, the insurance company pays out the proceeds to the business, providing an immediate source of funds to the business. While there are many advantages for a business to own key person life insurance, one disadvantage is that because the business is both the owner and the beneficiary of the policy, the premiums are not tax deductible. Key person life insurance is not a specific type of policy, but a way to use life insurance to offset a business risk. By using a permanent, participating life insurance policy, set up in the IBC way, the policy not only pays a guaranteed death benefit, but it can also be a valuable asset to the company’s balance sheet because of the policy's cash value. More than a Death Benefit Key person life insurance can even benefit a business if the insured doesn't die while employed by the company. Some added benefits are that the company can access the policy's cash value for other purposes, the cash value can be used to demonstrate financial stability to creditors, or it can be used as collateral for a loan. If the key employees are also the owners of the business, the policy can help fund a buyout of their interest in the business at their retirement. In addition, if the policy isn't needed to protect the business, it can be used to provide deferred compensation funds to the key employee. The bottom line is that key person life insurance can serve a number of uses and benefit a business both during the key employee's life, as well as after his or her death. Key person life insurance is a simple concept: it's life insurance that insures the life of a person key to the success of the business against unexpected death. It pays the business the death benefit so that it may cover the additional expenses associated with hiring and training a replacement for that employee. For a complimentary analysis of what this could mean for your business contact me at mzimmeribc@gmail.com.

IBC or 529?

...College Savings Food for Thought

What is a 529 College Savings Plan?

A 529 college savings plan is a tax-advantaged state-administered investment program that is authorized under Internal Revenue Code Section 529. These plans allow investors to save money in an account in which the earnings will grow free from federal income tax and, when used to pay for "qualified higher education expenses", may be withdrawn federal income tax-free. In many states, a participant can receive special state incentives, including state tax treatment that mirrors the federal tax treatment, tax deductions/credits and/or other state tax benefits, based on participation in their state’s program(s).
Earnings in a 529 plan grow tax-deferred and are free of federal income tax when used for qualified higher education expenses under Internal Revenue Code Section 529 (26 U.S.C. 529). Qualified higher education expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance. Room and board expenses are also eligible for students enrolled half-time or more based on the current allowance for room and board determined by the eligible educational institution for federal financial aid purposes, or actual invoice amount charged by the institution to the beneficiary, if greater. In addition, qualified higher education expenses also include expenses of a special needs beneficiary that are necessary in connection with his or her enrollment or attendance at an eligible educational institution.

What are the tax benefits?

Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.   Additionally, most states allow tax-deferred earnings and tax-free withdrawals for qualified higher education expenses, and some states allow families to deduct the full or a partial amount of their contribution from their state income taxes.

While many aspects of 529 plans sound very appealing to "the masses," how we think about what is going on here is vitally important.  Note that in the above descriptions I've highlighted each brief segment points us back to the idea that someone else (our government) is in control of the flow of our investment dollars going and coming.  This is really the fundamental difference between this seemingly benign savings plan and having true, 100%, control of your cash flow in every way including college savings.  If you were to engage the IBC teaching videos on this page you would receive a healthy quick education on how IBC promotes flexibility, versatility, and freedom.  If you read the above on 529 plans you have to ask yourself - am I getting those three values from this college savings option?

Further, once a 529 plan is exhausted of funds on use of school/educational purposes what do you really have to show for the savings (other than a diploma)?  With IBC as your college savings option, you not only have a safe cash growth environment, use of cash for anything in life including college, an ever increasing pool for wealth building beyond college and a financial tool for retirement and generational legacy.  All this happening with 100% access and no penalties to access funds. Finally, an IBC plan allows for you to apply for FAFSA funding while not being required to report your dollars on the form. Simply stated, IBC is truly a strong consideration for college funding and wealth building beyond college providing versatility, flexibility, and freedom.