If you were asked to guess which college football coach makes the most money, who would you say? Perhaps you would guess Nick Sabin or Urban Meyer. In August of 2016, University of Michigan head football coach Jim Harbaugh became the highest paid college football coach in the country. His story made national news and rapidly became the most talked about life insurance story in recent years.
Jim Harbaugh claimed this title with the help of a deferred compensation alternative utilizing cash value life
insurance known as Indexed Universal Life Insurance (IUL). Instead of a Deferred Compensation Agreement, Harbaugh and University of Michigan entered into a Split-Dollar Loan Agreement, under which the University agreed to make seven loan advances of $2 million that Harbaugh could use to pay premiums on a life insurance policy.
As long as the policy holds, the loan will not have to be repaid until Harbaugh’s death, at which time, Michigan will recoup its original $14 million investment, and Harbaugh’s beneficiaries will receive the remainder of the death benefit. While some of the smaller details of the arrangement have not been made public, we know that the compensation strategy was designed to provide Harbaugh with millions of dollars of tax-free cash during retirement, and the ability to borrow money out of the policy as long as it meets certain sustainability requirements.
Insurance-based solutions, like the one used to provide Jim Harbaugh with millions of dollars of tax-free cash in retirement, are not just limited to high-profile football coaches. College Presidents, non-profit executives and even corporate executives have benefited from this type of solution. So when contemplating how to retain high valued executives, remember that there are times when using the organization’s balance sheet as opposed to the income statement makes sense.
Jim Harbaugh’s story lets us know that not all insurance and risk management provisions are created equal. Consult with an experienced professional to help build your business plan and implement strategies to reduce risk.