Significant improvement at little or no incremental cost
THE KAI-ZEN 162 EXECUTIVE BENEFIT PLAN is a leveraged Section 162 program that allows participating owners and executives to significantly increase their death benefit coverage to protect against life’s uncertainties. Through the use of specially designed insurance policies and arrangements with financial institutions, borrowed funds in conjunction with client contributions, are used to provide increased death benefits with the potential additional benefit of providing cash flow that can be used to supplement retirement income. The Kai-Zen Plan showcases the combined IBG/NIW core competencies of utilizing aggregation and leverage that results in 25-40% cost saving improvements vs. a self-funded plan.
HOW IT WORKS: A 162 Plan is a program for owner executives to bonus key executives and/or themselves in a cash flow effective manner. Bonuses are paid out in the normal fashion, the executive pays their tax and the remaining money is put into life insurance policies where the excess cash values grow over time. The employer takes the employee deduction as they would with any other employee compensation. The Kai-Zen plan then adds additional premium using borrowing to increase the amount of cash in the policy, thereby allowing either more death benefit to be obtained from the same bonus amount or the same death benefit with a reduced bonus amount.
Why are most 162 plans of limited interest to clients? Cash flow. For life insurance products to accumulate cash value effectively they need to be overfunded consistently year after year. Unfortunately most 162 plans assume the company has the cash flow available to allocate to these plans for at least the first 10 years, however, this is rarely the case resulting in disappointing returns for the employee. The Kai-Zen Plan combines client contributions with financing to significantly increase the cash value in the life policy, giving the following possible advantages:
- Less money is required for the same death benefit or an increased death benefit on the original amount.
- By over funding every year for 10 or more years, the policy cash values compound, resulting in more death benefit than can be achieved by the same level of client contribution.
- For those below the age of 55, there is a great probability of supplemental post retirement income in the form of policy loans that would be difficult to self-fund otherwise, thereby making the plan beneficial irrespective of when the insured dies.
- Because of the partial payments by the executive to the policy, the policy represents the full security for the loan. No employee/employer guarantees are required.
The diagram shown below is for a 55 year old male standard non-smoker with $1m of death benefit coverage.