Fringe Benefits with Executive
Bonus
Are you interested in an employee incentive plan? Do you want a plan where you determine
both initial and future costs? Do you want to choose which employees are covered? If you
answer "yes" to these questions, you may want to consider an executive bonus
program funded with life insurance.
This fringe benefit provides life insurance to selected key employees, including
owner-employees. The employer pays a tax-deductible bonus which is used to pay premiums,
deducts the bonus as a normal business expense and reports it as "other
compensation" on the employee's W-2. The employee owns the policy and reports the
bonus as taxable income.
The tax on this income is much less than the premiums paid by the employee, so the
employee's net cost is usually relatively minimal. And with cash-value life insurance,
growth in policy values may more than make up for any cost to the employee.
He or she may wish to recover the expense through dividends (which are not guaranteed), if
any, policy loans or partial surrenders, or the business may compensate the employee for
the tax through a "double bonus." Loans incur interest charges and partial
surrenders may be subject to transaction charges. Cash values and the death benefit will
be reduced by loans and surrenders.
Benefits to the Business:
 | Tax-deductible (as a business expense) bonus to pay premiums |
| An effective tool for recruiting and retaining key employees |
Benefits to the Employee:
| Custom fit to meet employee needs and objectives |
| Insurance protection for spouse and/or family in event of death |
| Potential cash value growth may supplement retirement income |
| Taxes paid only on the premium amount (as additional income) |
Does an executive bonus program funded with life insurance make sense for your business? If so....give us a shout
