(Presentations in this Blog were created using the InsMark Illustration System.)
A dog you want costs $500. Your boss wants to help you buy it, so she gives you a $500 bonus.
Is it a free dog? No — because you have to pay the tax on the bonus. If you’re in a 40% tax bracket, the dog costs you $200.
So let’s see if your boss will help you out. You ask her to increase the bonus to $833. If so, you’ll pay $333 in income tax and have $500 left over to buy the dog.
Would this get you a free dog? Yes — but it doesn’t matter because she won’t do it. All she’ll come up with is the $500.
We have to find a way to pay the $200 tax on the $500 bonus — and pay for the dog.
What if we could find a bank to take the dog as collateral for a $200 loan? And the bank added the interest to the loan? And the loan included free dog life insurance so when the dog died, the loan was paid off?
Now that would be a free dog!
Let’s see if we can make this work with a life insurance policy.
Assumptions:
Executive: Age 45;
Initial face amount of policy: $1,184,217;
Premium: $50,000 a year for 5 years;
Bonus from employer: $50,000 a year for 5 years;
Income tax due by executive (40% tax bracket): $20,000 a year for 5 years;
Policy loans by the executive to cover the income tax: $20,000 in years 2 through 6*;
Policy loans by the executive for retirement cash flow from age 65 to 95: $55,000 a year.
You won’t get a bank to help you with the free dog, but you can certainly get a business and a life insurance company to join in a transaction that resembles it.
It’s called an Executive Bonus Plan, and it’s designed to reward a valuable executive with a benefit that, like the free dog, cannot be duplicated personally.
Below are the illustrated results for this plan from the InsMark Illustration System software.
Click here to see reports for this Executive Bonus Plan from the InsMark Illustration System software.
InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)
We created Referral Resources to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice. You can utilize your choice of insurance company, there is no commission split, and you don’t have to change any current relationships. They are very familiar with running InsMark software.
Please mention my name when you talk to a Referral Resource as they have promised to take special care of my readers. My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.
Save time and get results with any InsMark illustration. Contact:
- Ben Nevejans, President of LifePro Financial Services in San Diego, CA.
InsMark’s Documents On A Disk™ System (DOD) has specimen legal documents for installation of several variations of the Executive Bonus Plan. Click here for Highlights of the Plan of the one typically used for non-owner employees. Click here for Highlights of the Plan of the one typically used for owner-employees. Click here to review features of DOD.
Click here to see reports for this Executive Bonus Plan from the InsMark Illustration System software.
InsMark’s Digital Workbook Files
If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.
Digital Workbook Files For This Blog
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Robert B. Ritter, Jr. Blog Archive
Thanks Bob for the great comments – your article highlights what I call a “traditional IRA killer” because the math behind your illustration is so much better than the executive putting their money in an IRA.
Thanks, Matt. I hadn’t thought of it this way.
Bob
The following comments were made on Blog #3 “Identifying Good Prospects, Discarding Bad Ones” and are reprinted below for your consideration:
Steve Bertino on June 4th:
“It appears that the IUL product in the “Anyone Want a Free Dog?” blog . . . uses aggressive assumptions [which] are unlikely to perform as illustrated and invites litigation., Our agency compared this to Hancock, Pru, Lincoln Benefit and North American IULs and nothing comes close.”
Bob Ritter posted on June 11th:
Steve: We typically ask our software licensees to provide us with illustrations for sales concepts we are discussing in my blog. With the “Anyone Want a Free Dog?” blog you referenced, we were provided with an IUL illustration from a company that illustrates arbitrage in its calculations relative to policy loans which is the likely source of the differences you were unable to reproduce with several other carriers. There are several companies that use this procedure, and we may use illustration data from them from time to time. Since we are not in the business of promoting specific carriers in my blog, we always eliminate the names of carriers and their product names. I’m sorry if you found it difficult to compete with the details of the illustration as my purpose in writing that blog was to highlight an interesting way to present an Executive Bonus Plan. I’m sorry that aspect was apparently of no interest to you. Thanks for taking the time to comment.
Bob Ritter
Bob, Great addition to your fantastic software and training classes, Keep it up! paul
Paul, thanks so much for your kind words. Its comments and suggestions like yours that drive this forward. Bob