Executive Bonus Plans
Reward key employees with life insurance paid with deductible business dollars
Your key employees are an important reason that your business is profitable. Employers often use selective, discriminatory fringe benefits to reward those employees whose work is more responsible for creating profits. An Executive Bonus Plan is one of these selective benefits.
How an Executive Bonus Plan works:
- The employee takes out a personal life insurance policy and names a beneficiary.
- 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.
- The employee pays income taxes on the premium
Benefits for the company and key employees
Advantages to the company include:
- Easy administration
- Premium payments are deductible expenses
- IRS qualification/reporting is not required
- You select participants
- It is relatively inexpensive
- You can terminate the plan at any time
Advantages for key employees include:
- Business dollars pay most of the employees' costs
- The employee's beneficiary receives an income tax-free death benefit
- The remaining small cost can be decreased further using policy dividend options
- They own and control the policy and its cash values
- It is portable — they can take it with them when they leave the company
An Executive Bonus Plan can be an excellent low-cost method to reward employees whose hard work helps make your business profitable.
Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods. Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation.