Creative Compensation Agreement 
Posted In: Entrepreneurial Wealth Management

University of Michigan and football coach, Jim Harbaugh, recently agreed to a very innovative contract amendment that we wanted to share, as it highlights yet another way you can use life insurance creatively … as a tax-free form of compensation. In addition to paying him $5 million in salary, the University of Michigan will also loan Harbaugh an additional $14 million to pay the premium on a life insurance policy that will eventually pay $75 million to Harbaugh’s beneficiaries tax-free. For more details, we’ve attached the following link.

So why did Harbaugh agree to this? Simply put, he’s already making enough to sustain his lifestyle needs and the focus was to create a legacy for his heirs. If the university had paid him the $14 million directly, it would be taxable, but invested into life insurance, the $14 million creates a tax-free benefit of over $50 million for his heirs. What’s even better, Harbaugh can leverage up to 90% of the value of the policy while he’s alive! As for the University of Michigan, they get to recoup their original investment at time of Harbaugh’s death, whereas if they had just paid him the $14 million directly, they’d get nothing. It’s a win for both parties.

If you’re a business owner, CEO or high-income producing executive and you’re focused on saving or creating a legacy, life insurance is a financial tool that has many benefits; it may be something you thought you no longer needed, but when you look at all the different ways you can use it creatively, it makes sense to consider. If you’d like to have more of conversation on how to use life insurance for its tax and investment benefits, please contact us.