An executive bonus plan, also known as a Section 162 plan, is a way for a business to reward and retain key employees by providing them with a life insurance policy as part of their compensation package.

The business pays the premiums, and the employee owns the policy, enjoying both the death benefit and potential cash value. Premiums are treated as taxable income to the employee, but the death benefit is generally tax-free to their beneficiaries. Businesses often add a vesting schedule or restrictive endorsement to encourage loyalty and long-term retention.

Companies choose executive bonus plans because they’re simple to set up, flexible, and provide meaningful benefits without complicated regulations.

A marketing firm used an executive bonus plan to reward their top sales manager. The life insurance policy not only gave him peace of mind but also became a strong reason to stay with the company for years.

An executive bonus plan can help you retain top talent and provide valuable benefits that support your team’s loyalty and success.