Executive Bonus Coverage

An Executive Bonus Plan, also referred to as a Section 162 plan, allows a business to provide personally owned life insurance as a tax-deductible fringe benefit to select key employees.

If the benefit is for a non- owner employee, an executive bonus plan is appropriate for all business forms, including professional corporations, partnerships and LLC’S.  However, this type of plan does not offer any tax benefit for business owners if the business is an S-Corp, partnership or LLC taxed as partnership.

The Advantages of an executive Bonus Plan:

  • Employer decides who participates and how much of a bonus each employee will receive.
  • Bonus dollars are tax-deductible to the company as compensation to the key employee.
  • Simple to adopt with No IRS approval required.
  • Premiums are reported as “other compensation” on W-2 and are subject to FICA and FUTA taxes.
  • The key employee will own and control the policy and will have access to the riders, potential cash value growth and death benefit that make up the permanent life insurance policy.
  • The employee’s out-of-pocket cost is the tax due on the premiums paid by the employer that have been treated as compensation. You may choose to add a cash bonus to the arrangement (a double bonus) to offset the tax amount due.
  • Policy cash value grows tax-deferred and may be accessed through withdrawals or policy loans*.
  • Death benefit is paid to the insured's beneficiaries income tax-free.

Contact me for more information.


*Policy loans and withdrawls reduce the policy's cash value and death benefit and may result in a taxable event.  Surrender charges may redue the policy's cash value in early years.