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EXECUTIVE BONUS PLANS
What is an Executive Bonus Plan?
An executive bonus plan, also known as a Section 162 bonus plan, is a nonqualified employee benefit arrangement in which an employer provides life insurance for selected employees. Under this type of arrangement, the employee owns a life insurance policy insuring their life and names a personal beneficiary. The employer provides the funding for the policy premium and pays the premium directly to the life insurance company.
Executive bonus plans offer several advantages to both the employer and the employee.
These advantages are highlighted below.
Advantages of an Executive Bonus Plan
EMPLOYER
- Simple to implement and administer
- May limit participation to a select group of key employees and executives
- Costs may be tax-deductible
- Employee motivation and retention
- Flexibility
EMPLOYEE
- Life insurance protection
- Minimizes the cost of life insurance to the employee
- Cash value grows tax-deferred
- Cash value is available to the employee for emergencies, retirement, or other needs, generally on a tax-free basis1
- Generally, the beneficiaries receive the death benefit income tax-free2
- Flexibility
Please refer to the Target Markets section for additional advantages and benefits of an executive bonus plan.
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1 The use of cash value life insurance to provide a tax-free resource for accumulation goals assumes that there is first a need for the death benefit protection. The ability of a life insurance contract to accumulate sufficient cash value to help meet accumulation goals will be dependent upon the amount of extra premium paid into the policy, and the performance of the policy , and is not guaranteed. Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender. Surrender charges may reduce the policy’s cash value in early years.
2 Life insurance generally provides a tax-free death benefit (Per Internal Revenue Code § 101(a)(1). There are some exceptions to this rule. Please consult a qualified tax professional for advice concerning your individual situation.
National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York.
Brochures and flyers linked to in this communication are approved for print use only. Please note that email marketing is subject to additional anti-spam requirements and should be submitted for advertising compliance approval prior to use. Seminars should be submitted for review of your personalization along with any invitations, announcements or other collateral marketing materials.
The companies of National Life Group® and their representatives do not offer tax or legal advice. Please encourage your clients to seek tax or legal advice from their appropriate professional advisor.
No bank or credit union guarantee | Not a deposit | Not FDIC/NCUA insured | May lose value | Not insured by any federal or state government agency
Guarantees are dependent upon the claims-paying ability of the issuing company.
FOR AGENT USE ONLY - NOT FOR USE WITH THE PUBLIC
TC141219(0424)3 | Cat 106284(0424)