University of Michigan and football coach, Jim Harbaugh, recently agreed to a very creative compensation agreement. 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. This policy will eventually pay $75 million to Harbaugh’s beneficiaries tax-free. For more details, we’ve attached the link to the full article here.
So why did Harbaugh agree to this?
Simply put, he is already making enough to sustain his lifestyle needs. The focus was to create a legacy for his heirs. If the university had paid him the $14 million directly, it would be taxable. Instead, by investing into life insurance, the $14 million creates a tax-free benefit of over $50 million for his heirs. A cherry on top of the icing – 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 is a very creative compensation agreement and definitely a win win situation for both parties.
If you have a focus on saving or creating a legacy, life insurance is a beneficial and creative financial tool . You may have been unaware of these benefits before. It may be something you thought you no longer needed. However, when you look at all the different ways you can use it creatively, it makes sense to consider. Check out our article on the benefits of an investment life insurance contract here.
If you’d like to have more of conversation on how to use life insurance for its tax and investment benefits, please feel free to contact us.
Jeff Devlin | Certified Financial Planner, Director
