Financial professionals

Retain key employees with an executive bonus plan

Business woman shaking hands

Successful business owners know the key to successful business is their people. An executive bonus program funded with permanent life insurance can be a great way to help business owners recruit, retain, and reward key employees.

How does it work?

An executive bonus plan allows business owners to choose the participants in the plan and is typically simple to administer. Under the plan, the key employee owns life insurance on his or her life and selects a policy beneficiary. The business pays the premium (typically through a salary bonus) in accordance with a written agreement with the employee. The employee typically pays tax on the bonused premium amounts. 

Benefits of an executive bonus plan:

  • Provides a quality fringe benefit for key employees
  • Typically simple to administer
  • Allows flexibility as to plan participants
  • May provide the business with a current tax deduction
  • Offers the employee death benefit protection and, when permanent life insurance is used, accumulated cash values

The employee enjoys the security of life insurance coverage while having access to the policy’s cash value in a standard executive bonus design. And when properly structured, cash bonused to pay the policy premiums is tax deductible to your business assuming IRS guidelines are met.

This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.

If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals, if taken, will reduce the death benefit. Withdrawals (partial surrenders) and loans from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the withdrawal or loan is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply. Always consult with a tax advisor regarding your particular situation.

Products are issued by the AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.

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