Executive Bonus Policies
Reward key employees with life insurance paid with deductible business dollars
Your key employees1 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 policy is one of these selective benefits.
How an Executive Bonus policy 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.
Company and key employees take aways
Company feature include:
- Easy administration
- Premium payments are deductible expenses
- IRS qualification/reporting is not required
- Participants must be considered key employees.
Key employees features include:
- Business dollars may pay most of the employees' costs
- The employee's beneficiary receives an income tax-free death benefit
- 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 policy can be an excellent low-cost method to reward employees whose hard work helps make your business profitable.
1 Key employees must be either highly compensated employees or management.
This material may contain a general analysis of federal tax issues. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.
Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender charges. Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.
