The key to keeping employees happy is offering them the right benefits. An insurance-based income solution lets your small business clients offer their employees the opportunity to save more money for the future once they've maxed out their qualified retirement plans.

How this plan works

An insurance-based income solution is a personally-owned life insurance policy designed to maximize cash value and income while minimizing death benefit. If designed properly as a non-MEC (modified endowment contract), it can be funded with after-tax dollars and offers tax-deferred growth, tax-free income and a tax-free death benefit.

There are no contribution limitations or required minimum distributions from an insurance-based income solution, unlike a qualified retirement plan subject to ERISA.

Diagram of how an insurance-based income solution works; description below,

With an insurance-based income solution, the employer offers the key employee the opportunity to save more for the future once they’ve maxed out their qualified retirement plan.

Using after-tax dollars, the key employee pays the premium on and personally owns a life insurance policy. The policy must stay in force until death proceeds become payable; otherwise, lapses or surrenders may result in adverse tax consequences. A premium load may be assessed on premium payments.

  • During his or her working years, the key employee has access to the cash values of the life insurance policy
  • Upon retirement, the employee receives tax-free supplemental retirement income (in the form of loans and partial withdrawals) from the policy
  • Upon the employee’s death, the insurance company pays the death benefit to the employee’s beneficiaries, income tax-free

Tax advantages

  • Tax-preferred cash flow can be withdrawn from the policy through withdrawals and loans (assuming policy qualifies as a non-MEC)
  • Employees can defer additional after-tax money that can be accessed tax-free when needed
  • There are no pre-59½ withdrawal penalties and no required minimum distributions at age 70½
  • It lacks the contribution limits and regulatory rules associated with traditional qualified retirement plans
  • There's no impact on existing qualified retirement plans — you can have both a qualified retirement plan and an insurance-based income solution

 Protection for employees’ families

  • Death benefit guarantees provide basic insurance protection for the employee and his or her family
  • Wealth is transferred to the employee's beneficiaries income tax-free, and if properly structured, estate tax-free as well

Flexibility and control with insurance-based income solutions

  • A variety of optional features and riders can customize the policy even more; these are available at an additional cost and may not be available in every state
  • The after-tax contribution covers both life insurance protection and supplemental retirement accumulation needs
  • The policy's cash value grows tax-deferred, avoiding the burden of additional taxes during working years
  • The employee has the discretion to make the investment choices, from conservative to aggressive
  • The employee can choose the amount of insurance coverage within qualifying limits, how much premium to pay and how often (within certain limits), and the timing and amount of withdrawals during retirement


This client-ready brochure explains how, with an insurance-based income solution, they may be able to protect their family's future through a death benefit while they save for retirement with the same product.


Have small-business clients but don’t know which life insurance solution is right for their business? Answer a few questions and get a recommendation from the Nationwide Small Business Solutions Analyzer.

Get started
For more information, contact the Solutions Center at 1-800-321-6064

As situations change, so will the business's life insurance needs. Care should be taken to ensure these strategies and products are suitable for the business's and the client's long-term goals. Weigh the business's objectives, time horizon and risk tolerance as well as any associated costs before investing. Also, be aware that market volatility can lead to the possibility of the need for additional premium in the policy. Variable life insurance has fees and charges associated with it, which include costs of insurance, underlying fund expenses and administration fees. Investing involves risk, including possible loss of principal. Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.

Variable life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as gender, health and age, underlying fund charges and expenses, and additional charges for riders that customize a policy to fit their individual needs. Variable products are sold by prospectus. You can obtain the product prospectus and underlying fund prospectuses by writing to Nationwide Life Insurance Company, P.O. Box 182021, Columbus, OH 43218-2021. Before you invest, you should read the prospectus carefully and consider investment objectives, risks, charges and expenses. The product prospectus and underlying fund prospectus contain this and other important information.

Loans and withdrawals will reduce the death benefit. Most distributions will be taxed on a first-in/first-out basis, as long as the contract is not a modified endowment contract (MEC) according to Section 7702A of the Internal Revenue Code. Loans from a MEC are generally taxable and subject to a 10% tax penalty if taken before age 59 1/2. If the policy lapses with a loan outstanding, it will be treated as a distribution and some or all of the amount may be taxable.

Guarantees and protections are subject to Nationwide's claims-paying ability. They do not apply to the investment performance or safety of the underlying investment options.

Investment products are not FDIC-insured, may lose value and have no bank guarantee.