Business Solutions

Executive Benefits » Executive Bonus Plans

 

Executive Bonus Plans:
The Executive Bonus Plan is an advantageous way for a company to reward and retain key employees with bonuses on a discretionary basis. The arrangement is most frequently set up using cash value life insurance paid with deductible business dollars.

How it works:

1. The key employee takes out a personal life insurance policy and names the beneficiary
2. The business pays the policy premium to the insurer. It can deduct the premium on its income taxes as long as the total payments to the employee are considered reasonable compensation.
3. The employee pays income taxes on the premium and then owns and controls the policy and its tax-deferred cash values.

Advantages for the company:

• Easy administration
• Premium payments are deductible expenses
• IRS qualification/reporting is not required
• Freedom to select participants
• Ability to terminate the plan at any time

Advantages to key employees:

• Fringe benefit paid by the business
• Employee-named beneficiary receives income tax-free death benefit
• Ownership and control of the policy and cash values
• Portable life insurance policy

 

« Back