Jim Harbaugh’s $4 Million Life Insurance Strategy Explained

Ever wonder if the rich and famous use life insurance?

Life insurance is a private asset. That’s why you don’t hear a lot about it in the public arena. But wouldn’t you love to hear how life insurance is being used in the lives of people whose names you’d recognize?

Today, we’re talking about some life insurance that’s as close to the spotlight as you get—coach of the Michigan Wolverines, Jim Harbaugh, agreed to have his compensation package include life insurance. 

Today, we’re going to talk about one case where life insurance was used as executive deferred compensation that benefits both the employee and the employer.

So, if you’d love to see how other people are using life insurance, join us for the conversation!

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Why Don’t More People Talk About Life Insurance?

Well, likely because it’s such a private asset. Whole life insurance shields policy owners from creditors, is not reported to the IRS, and it doesn’t have to be included on FAFSA forms. In fact, it can’t be used in lawsuits either. 

The privacy afforded by whole life insurance is so valuable, and yet it also means that unless someone talks about their own experience, there’s no way to Google how much insurance someone has or doesn’t have. 

Add to that the fact that many people still believe whole life insurance is only useful for death benefits or that it’s too expensive or complicated to understand.

This combination of legal privacy and public misunderstanding is why many people (even professionals) rarely talk about life insurance in depth.

But it’s not just for retirees or families. Whole life plays a major role in executive compensation packages, often structured to reduce tax exposure or retain top talent.

By its nature, insurance is private, which means people who have it tend to be private about it. Now that someone in the spotlight—Jim Harbaugh—has publicly spoken about life insurance, it’s a little easier to put it into context for you. 

His life insurance strategy is a perfect case study in how this under-the-radar financial tool gets used at the highest level.

Jim Harbaugh’s Life Insurance

Not only is Jim Harbaugh being paid $5 million a year as a coach, but the Jim Harbaugh life insurance package negotiated with Michigan adds another layer of long-term value. The university has loaned him $4 million to start a policy, with an additional $2 million a year for the following five years.

This type of agreement is known as a split-dollar arrangement, which is commonly used in high-level executive contracts to offer long-term incentives and minimize tax liabilities.

The ability to leverage his policy means he can take loans without incurring income tax. And as long as he keeps his policy in force, he does not have to repay the loan from the school until he passes on. A portion of the death benefit will pay it off. 

In practical terms, this gives Harbaugh tax-advantaged access to cash throughout his life while still leaving a sizable benefit behind.

This is what we call a win-win situation—where the school has a near-guarantee to receive their money back, they’ve secured Harbaugh as a coach, and Harbaugh gets the benefit of a policy. 

Of course, there are stipulations to this contract. If Harbaugh leaves his coaching position before the contract is up, he will have to repay the premiums loaned to him upon termination or resignation. 

This life insurance strategy isn’t unique to football coaches. It’s a smart approach for any executive seeking long-term financial security and flexibility without giving up liquidity today. 

Benefits for Harbaugh’s Heirs

Not only will Harbaugh benefit, but this arrangement actually acts as significant protection for his heirs. If Harbaugh were to pass on while Michigan is paying for the policy, they won’t be disinherited. They will receive no less than 150% of the premiums paid on the policy. 

That means, if Harbaugh were to pass, and Michigan had paid $10 million until that point, his heirs would receive at least $15 million. The payout would also help the university recover what they had loaned him, and be able to cover the cost of replacing him. 

A Creative Way to Use Life Insurance

Ultimately, not only does this move allow Harbaugh to earn more money, as well as leverage power, but it also allows the University to invest in him through a cash value life insurance policy.

A Split-Dollar Arrangement

A split-dollar agreement is a way of structuring life insurance, where the employer and employee determine who will pay what. Then, they determine how much of the cash value and death benefit each party is entitled to. 

In other words, it’s a shared agreement, often used to give executives life insurance coverage without the full financial burden falling on them.

This type of arrangement allows employers to offer competitive benefits to their key employees. One reason is that insurance isn’t beholden to the same regulations as a 401(k) plan, for example. A 401(k), if offered, must extend to all employees of a particular group—usually on a full-time or part-time designation. 

On the other hand, life insurance is more selective and at the employer’s discretion. Many companies use this strategy for their key employees. One notable difference in this scenario? Harbaugh has immediate access to his cash value, so he can use it along the way. In many arrangements, the company retains control over the cash value for a certain amount of time.

That detail is what makes this setup so unusual. It resembles a split-dollar contract, but Harbaugh’s terms are more flexible than most. In typical cases, access to cash value is limited or delayed.

This agreement is also keeping Michigan from letting Jim go, because both parties are subject to the contract. Harbaugh isn’t currently performing well as a coach right now, in the eyes of alumni. This agreement keeps his job secure for the remainder of the contract, because otherwise Michigan would have to buy him out of the contract. 

That clause creates both protection and pressure: Harbaugh gets job security, but Michigan is financially committed even if performance dips. That’s the trade-off built into many split-dollar life insurance deals. 

Other Successful Uses of Permanent Life Insurance

The Jim Harbaugh life insurance strategy has actually paved the way for other coaches to have insurance in their compensation plans. Clemson, for example, has included insurance in coach Dabo Swinney’s contract. Other people of note?

President Biden has four insurance policies with a mutual company. Walt Disney used his cash value to fund Disneyland. Stanford was able to keep its doors open during the Panic of 1893 thanks to life insurance.

JC Penney funded his payroll through whole life insurance when the stock market crashed in 1929. There are dozens of popular examples of success with permanent life insurance, if you look for them. And in this age of information, details like this are becoming more and more available. 

Aside from high-profile names, permanent life insurance has long been used in more technical but equally powerful ways—especially in business and estate planning. It’s a popular funding method for buy-sell agreements, where business partners use policies to ensure a smooth ownership transition if one partner passes away.

Companies also take out whole life policies on key employees. This is known as “key person insurance,” which provides financial protection if they lose someone whose absence would hurt operations. On the estate planning side, whole life can be used to equalize inheritances among heirs or to leave a charitable gift outside of probate. These strategies aren’t flashy, but they’re remarkably effective when structured correctly. 

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