Employer Benefits • Ted is able to pick and choose plan participants and vary bonus levels from one employee to another. • The arrangement is easy to manage with minimal administration. The arrangement can be terminated at any time and no IRS approval is needed. • The bonus Ted pays to Steve is tax-deductible if the compensation is reasonable. • An executive bonus plan works best in C Corporations whose owners and executives are in a lower tax bracket than the corporation and where there is a need to attract and retain valuable employees. • Ted’s bonus plan incents Steve to remain because future bonuses are contingent on Steve staying in Ted’s employ.
Employee Benefits • Steve can buy life insurance at lower cost than if he purchased it on an individual basis. His out-of-pocket costs could be completely eliminated if Ted grosses up to pay premium plus the income tax due on the bonus. • Steve can borrow from the policy’s cash value to meet emergency needs.
Specific tax and legal questions should be referred to your other professional advisors. The coverage described in this brochure is for the Cashback Life series of Kansas City Life Insurance Company (Home Office: Kansas City, MO) Policy form J184, rider forms R102, R207, R210, R195 and R214. Form numbers may differ by state. Coverage may not be available in all states.
• Because Steve’s Cashback Life policy is portable, he could have life insurance coverage before and after his retirement. • At the end of the level premium period, Steve can take a tax-free refund of all premiums paid to supplement other benefits or convert to permanent life insurance. • At Steve’s death, his family will have the cash to replace his income, liquidate debt and/or pay estate taxes and administrative costs.
KANSAS CITY LIFE INSURANCE COMPANY
Cashback Life for Executive Bonus Planning
3520 Broadway Kansas City, MO 64111 816-753-7000 www.kclife.com
2010A
11.09L State Exception
2010A.indd 2
12/4/09 1:38:04 PM
It’s not unusual for a small business owner to rely on the special talent of one or two key employees. If you’re interested in retaining and rewarding a key employee, consider a Kansas City Life Cashback Life insurance policy. An executive bonus plan using a return of premium (ROP) life insurance policy from Kansas City Life Insurance Company allows a business owner to provide a “golden handcuff” type fringe benefit to certain key employees.
How It Works • The employer arranges for the key employee to purchase and own a Cashback Life insurance policy. The employee names his or her beneficiaries. • The employee reports the bonus as income and pays income tax on the amount of the bonus. The tax on the bonus can be offset by an additional bonus known as a “double bonus”, if the employer prefers. The bonus amount is income tax deductible to the employer as long as the employee’s overall compensation is reasonable. • At the end of the policy term, the Cashback Life returns all eligible premiums paid which means a tax-free, guaranteed payment to the employee.
Take a Closer Look Steve, an employee of Ted, is a healthy 38 year old with a family. With Ted’s help, Steve purchases and owns a $500,000 Cashback Life 20 policy that provides an insurance benefit to his beneficiaries during his working years. Ted agrees to bonus $1,820 to Steve annually for 20 years. This covers the annual Cashback Life 20 insurance premium. If Steve outlives the 20-year level premium period, 100 percent of the cumulative premiums are available to Steve on an income tax-free basis. In Steve’s case, this would be a total return of $36,400 at the end of the 20th year.
Executive Bonus Plan and Cashback Life 20 Corporate Cost @ 34%
Personal Cost @ 28%
Age
End of Year
Pretax Premium
After-tax Premium
Income
Tax
Cash Value
38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
$2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210
$1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459
$2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210
$619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619
– – – $1,345 $3,885 $6,470 $9,090 $11,730 $14,400 $17,095 $19,860 $22,690 $25,565 $28,455 $31,330 434,165 $36,910 $39,505 $41,945 $44,200
IRR* – – – – 11.41% 22.05% 24.16% 23.76% 22.61% 21.26% 19.97% 18.78% 17.69% 16.68% 15.76% 14.90% 14.09% 13.33% 12.61% 11.92%
Chart based on a Kansas City Life Cashback Life 20 product, 38-year-old, preferred nontobacco male with a $500,000 death benefit. The executive bonus plan is deductible to the employer if the employee’s total compensation is a reasonable amount. [IRC Sec. 162(a)(1), Reg. 1.1629]. The insured bonus is includable as gross income to the employee [IRC Sec. 61(a)]. At death, the policy death proceeds are received by the employee’s beneficiary income tax-free. [IRC Sec. 101(a)(1)]. *The IRR represents the after-tax rate of return if $510 were invested for a specified number of years and cash value was returned tax-free at the end of those specified years. In year 8, the IRR becomes positive.
2010A.indd 1
12/4/09 1:38:01 PM
It’s not unusual for a small business owner to rely on the special talent of one or two key employees. If you’re interested in retaining and rewarding a key employee, consider a Kansas City Life Cashback Life insurance policy. An executive bonus plan using a return of premium (ROP) life insurance policy from Kansas City Life Insurance Company allows a business owner to provide a “golden handcuff” type fringe benefit to certain key employees.
How It Works • The employer arranges for the key employee to purchase and own a Cashback Life insurance policy. The employee names his or her beneficiaries. • The employee reports the bonus as income and pays income tax on the amount of the bonus. The tax on the bonus can be offset by an additional bonus known as a “double bonus”, if the employer prefers. The bonus amount is income tax deductible to the employer as long as the employee’s overall compensation is reasonable. • At the end of the policy term, the Cashback Life returns all eligible premiums paid which means a tax-free, guaranteed payment to the employee.
Take a Closer Look Steve, an employee of Ted, is a healthy 38 year old with a family. With Ted’s help, Steve purchases and owns a $500,000 Cashback Life 20 policy that provides an insurance benefit to his beneficiaries during his working years. Ted agrees to bonus $1,820 to Steve annually for 20 years. This covers the annual Cashback Life 20 insurance premium. If Steve outlives the 20-year level premium period, 100 percent of the cumulative premiums are available to Steve on an income tax-free basis. In Steve’s case, this would be a total return of $36,400 at the end of the 20th year.
Executive Bonus Plan and Cashback Life 20 Corporate Cost @ 34%
Personal Cost @ 28%
Age
End of Year
Pretax Premium
After-tax Premium
Income
Tax
Cash Value
38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
$2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210
$1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459
$2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210
$619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619
– – – $1,345 $3,885 $6,470 $9,090 $11,730 $14,400 $17,095 $19,860 $22,690 $25,565 $28,455 $31,330 434,165 $36,910 $39,505 $41,945 $44,200
IRR* – – – – 11.41% 22.05% 24.16% 23.76% 22.61% 21.26% 19.97% 18.78% 17.69% 16.68% 15.76% 14.90% 14.09% 13.33% 12.61% 11.92%
Chart based on a Kansas City Life Cashback Life 20 product, 38-year-old, preferred nontobacco male with a $500,000 death benefit. The executive bonus plan is deductible to the employer if the employee’s total compensation is a reasonable amount. [IRC Sec. 162(a)(1), Reg. 1.1629]. The insured bonus is includable as gross income to the employee [IRC Sec. 61(a)]. At death, the policy death proceeds are received by the employee’s beneficiary income tax-free. [IRC Sec. 101(a)(1)]. *The IRR represents the after-tax rate of return if $510 were invested for a specified number of years and cash value was returned tax-free at the end of those specified years. In year 8, the IRR becomes positive.
2010A.indd 1
12/4/09 1:38:01 PM
It’s not unusual for a small business owner to rely on the special talent of one or two key employees. If you’re interested in retaining and rewarding a key employee, consider a Kansas City Life Cashback Life insurance policy. An executive bonus plan using a return of premium (ROP) life insurance policy from Kansas City Life Insurance Company allows a business owner to provide a “golden handcuff” type fringe benefit to certain key employees.
How It Works • The employer arranges for the key employee to purchase and own a Cashback Life insurance policy. The employee names his or her beneficiaries. • The employee reports the bonus as income and pays income tax on the amount of the bonus. The tax on the bonus can be offset by an additional bonus known as a “double bonus”, if the employer prefers. The bonus amount is income tax deductible to the employer as long as the employee’s overall compensation is reasonable. • At the end of the policy term, the Cashback Life returns all eligible premiums paid which means a tax-free, guaranteed payment to the employee.
Take a Closer Look Steve, an employee of Ted, is a healthy 38 year old with a family. With Ted’s help, Steve purchases and owns a $500,000 Cashback Life 20 policy that provides an insurance benefit to his beneficiaries during his working years. Ted agrees to bonus $1,820 to Steve annually for 20 years. This covers the annual Cashback Life 20 insurance premium. If Steve outlives the 20-year level premium period, 100 percent of the cumulative premiums are available to Steve on an income tax-free basis. In Steve’s case, this would be a total return of $36,400 at the end of the 20th year.
Executive Bonus Plan and Cashback Life 20 Corporate Cost @ 34%
Personal Cost @ 28%
Age
End of Year
Pretax Premium
After-tax Premium
Income
Tax
Cash Value
38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
$2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210
$1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459 $1,459
$2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210 $2,210
$619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619 $619
– – – $1,345 $3,885 $6,470 $9,090 $11,730 $14,400 $17,095 $19,860 $22,690 $25,565 $28,455 $31,330 434,165 $36,910 $39,505 $41,945 $44,200
IRR* – – – – 11.41% 22.05% 24.16% 23.76% 22.61% 21.26% 19.97% 18.78% 17.69% 16.68% 15.76% 14.90% 14.09% 13.33% 12.61% 11.92%
Chart based on a Kansas City Life Cashback Life 20 product, 38-year-old, preferred nontobacco male with a $500,000 death benefit. The executive bonus plan is deductible to the employer if the employee’s total compensation is a reasonable amount. [IRC Sec. 162(a)(1), Reg. 1.1629]. The insured bonus is includable as gross income to the employee [IRC Sec. 61(a)]. At death, the policy death proceeds are received by the employee’s beneficiary income tax-free. [IRC Sec. 101(a)(1)]. *The IRR represents the after-tax rate of return if $510 were invested for a specified number of years and cash value was returned tax-free at the end of those specified years. In year 8, the IRR becomes positive.
2010A.indd 1
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Employer Benefits • Ted is able to pick and choose plan participants and vary bonus levels from one employee to another. • The arrangement is easy to manage with minimal administration. The arrangement can be terminated at any time and no IRS approval is needed. • The bonus Ted pays to Steve is tax-deductible if the compensation is reasonable. • An executive bonus plan works best in C Corporations whose owners and executives are in a lower tax bracket than the corporation and where there is a need to attract and retain valuable employees. • Ted’s bonus plan incents Steve to remain because future bonuses are contingent on Steve staying in Ted’s employ.
Employee Benefits • Steve can buy life insurance at lower cost than if he purchased it on an individual basis. His out-of-pocket costs could be completely eliminated if Ted grosses up to pay premium plus the income tax due on the bonus. • Steve can borrow from the policy’s cash value to meet emergency needs.
Specific tax and legal questions should be referred to your other professional advisors. The coverage described in this brochure is for the Cashback Life series of Kansas City Life Insurance Company (Home Office: Kansas City, MO) Policy form J184, rider forms R102, R207, R210, R195 and R214. Form numbers may differ by state. Coverage may not be available in all states.
• Because Steve’s Cashback Life policy is portable, he could have life insurance coverage before and after his retirement. • At the end of the level premium period, Steve can take a tax-free refund of all premiums paid to supplement other benefits or convert to permanent life insurance. • At Steve’s death, his family will have the cash to replace his income, liquidate debt and/or pay estate taxes and administrative costs.
KANSAS CITY LIFE INSURANCE COMPANY
Cashback Life for Executive Bonus Planning
3520 Broadway Kansas City, MO 64111 816-753-7000 www.kclife.com
2010A
11.09L State Exception
2010A.indd 2
12/4/09 1:38:04 PM
Employer Benefits • Ted is able to pick and choose plan participants and vary bonus levels from one employee to another. • The arrangement is easy to manage with minimal administration. The arrangement can be terminated at any time and no IRS approval is needed. • The bonus Ted pays to Steve is tax-deductible if the compensation is reasonable. • An executive bonus plan works best in C Corporations whose owners and executives are in a lower tax bracket than the corporation and where there is a need to attract and retain valuable employees. • Ted’s bonus plan incents Steve to remain because future bonuses are contingent on Steve staying in Ted’s employ.
Employee Benefits • Steve can buy life insurance at lower cost than if he purchased it on an individual basis. His out-of-pocket costs could be completely eliminated if Ted grosses up to pay premium plus the income tax due on the bonus. • Steve can borrow from the policy’s cash value to meet emergency needs.
Specific tax and legal questions should be referred to your other professional advisors. The coverage described in this brochure is for the Cashback Life series of Kansas City Life Insurance Company (Home Office: Kansas City, MO) Policy form J184, rider forms R102, R207, R210, R195 and R214. Form numbers may differ by state. Coverage may not be available in all states.
• Because Steve’s Cashback Life policy is portable, he could have life insurance coverage before and after his retirement. • At the end of the level premium period, Steve can take a tax-free refund of all premiums paid to supplement other benefits or convert to permanent life insurance. • At Steve’s death, his family will have the cash to replace his income, liquidate debt and/or pay estate taxes and administrative costs.
KANSAS CITY LIFE INSURANCE COMPANY
Cashback Life for Executive Bonus Planning
3520 Broadway Kansas City, MO 64111 816-753-7000 www.kclife.com
2010A
11.09L State Exception
2010A.indd 2
12/4/09 1:38:04 PM