Strategies for Using Life Insurance to Retain Top Talent

To succeed, all businesses, from garage start-ups to Fortune 500 companies, need top talent. In a competitive workforce, attracting and retaining key contributors is often difficult. There are ways to offer these employees effective additional compensation without unreasonably impacting your profits.

Keep Top Talent with Life Insurance

Life insurance can be an effective vehicle for retaining talent for a number of reasons:

  • More valuable than a bonus. If you want to provide bonuses to your employees, the additional protection offered through life insurance may be more valuable to them than additional income.
  • Reduced annual cost. Premiums for a life insurance policy can be inexpensive.
  • Tailored to your business. Depending on the way your compensation plan is implemented, with life insurance, you can offer the benefit on a person-by-person basis. You can even specify a different value for each individual, unlike a more regulated benefit, such as a 401(k) plan.
  • Kind to your balance sheet. Depending on how it is used, life insurance can provide tax advantages and other benefits to make it valuable to your bottom line. In some cases, life insurance can recover the cost to your business of providing the benefit.

However, there are some considerations:

  • Employees will need to be in reasonably good health to obtain life insurance.
  • Life insurance premiums for older employees are generally higher than for younger employees.

Common Strategies

Several strategies exist for providing additional benefits to your top talent through life insurance. Each can be designed for your business’s needs.

  • Executive bonus. In an executive bonus arrangement, the employer provides select employees valuable life insurance for their personal protection goals.
  • Split-dollar. A split-dollar arrangement allows an employer and an employee to share the premium, death benefit, and cash value of a permanent life insurance policy. For example, the employee might enjoy additional life insurance protection and the employer may receive the premiums paid at a future date. Please note that these arrangements are subject to certain restrictions in publicly traded corporations.
  • Non-qualified plans funded with life insurance. These plans provide greater benefits for owners and employees with more flexibility to the business and fewer regulations than qualified plans.

You are Top Talent, too

Any of these strategies can be used to reward yourself for the hard work you dedicate to your business. For example, you can use life insurance to protect your family, as part of your business continuation plan, and to unlock the value of your business for supplemental retirement income.

A licensed financial professional can explain more about how life insurance can help attract and retain top talent, as well as work in conjunction with your attorney, your accountant, and other advisors to help you implement these strategies for your business. Be sure to consult with your tax and legal advisors as part of the planning process.

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