Executive Bonus

If you have key executives you want to reward for their performance, an Executive Bonus plan can be an effective tool.

How does an Executive Bonus plan work?

Your company enters into an agreement with an executive stating that his/her bonus(es) will be used to purchase a life insurance policy on his/her life. The insurance premiums funded with the executive's bonuses are tax-deductible to your company and taxable to the executive. The executive owns the insurance policy and names the beneficiary(ies) and controls all rights to any available cash value accumulation. An Executive Bonus plan can also be structured so that the employee receives additional compensation to help offset the taxes due on the bonus.

Employer advantages of an Executive Bonus plan

  • Usually requires no IRS approval.
  • Your company elects to use life insurance to indirectly fund the Executive Bonus program.
  • Design and implementation is simple and administrative costs are minimal.
  • Can be terminated at any time pursuant only to the terms of the agreement.

Employee advantages of an Executive Bonus plan

  • Can be custom designed to meet each executive's individual needs.
  • Life insurance policy cash value accumulates tax-deferred.
  • With proper structuring, federal tax-free income can be received from the life insurance policy cash value through withdrawals and loans.
  • The policy is portable and can be maintained after termination of the executive bonus arrangement or termination of employment.