Question

Provide one example of the tax treatment of deferred compensation. Discuss whether the taxation of this income harms taxpayers in general.

Answer 1

Insurance may be an alternate to taxation of deferred compensation.

A key objective can be to meet competitive insurance coverage & deferred compensation market practices. Targeting each benefit individually can be more effective – & simpler – than trying to use a combined approach through a life insurance policy. A combined approach often requires policy to have a high level of insurance to support targeted deferred compensation level, at a level that can be more than the individual needs/ wants to carry. High level of insurance is also accompanied by higher mortality expenses & can require a more onerous underwriting process.