• Adventures Unlimited would like to begin providing life insurance coverage for its employees. The company has three officer/employees who each make $100,000 a year. There are two other employees who each earn $50,000 a year. Ricky, the company president, comes to you for advice on the best choice to make. He says they have identified three alternatives, each of which will cost the company $12,500 per year in premiums (an average of $2,500 per employee.)

Option 1 - Give each employee $2,500 to purchase their own coverage.

Option 2 - Buy a group term life insurance policy that would provide each employee with insurance equal to twice his or her annual salary.

Option 3 - Buy a whole life insurance policy under which each employee would receive $100,000 of coverage.

Required: Explain the three options and the tax consequences of each, both to the company and to the employees. Then tell Ricky which one will provide the greatest overall benefit to everyone.