Executive Bonus (162 Bonus) Plan
The employer bonuses the employee enough to pay the premium on a policy the employee owns, with the bonus deductible to the employer and taxable to the employee.
Drill all 803 terms as flip-card flashcards in the Exam Engine →
Practice This Concept
An employer pays the premiums on a life insurance policy owned by a key employee, and the premium amount is treated as additional taxable compensation to that employee. This arrangement is called a(n):
Executive bonus plan — An executive bonus plan (also called a Section 162 plan) is an arrangement in which the employer pays the premiums on a life insurance policy owned by the employee. Because the employee owns the policy, the employee controls the beneficiary designation and the cash value, and the premium payments are treated as taxable income to the employee. The employer generally deducts the premiums as compensation, which is why the plan is sometimes called a Section 162 bonus plan. The key distinguishing feature is that the employee owns the policy outright, not the employer.
National insurance concept
A business owner wants a valued employee's surviving family members to receive income after the employee's death, funded by life insurance the business owns. This arrangement is called a:
Salary continuation plan — A salary continuation plan is an employer-funded benefit that pays income to a designated employee's family after the employee's death. The employer typically owns the life insurance policy and is the beneficiary, then uses the proceeds to pay the surviving family members the continuation benefit. It differs from key person coverage, which indemnifies the business itself for its own loss, and from an executive bonus plan, in which the employee owns the policy and premiums are taxable compensation to the employee.
National insurance concept
Practice all life insurance questions →