{"id":158,"date":"2026-07-29T15:46:27","date_gmt":"2026-07-29T19:46:27","guid":{"rendered":"https:\/\/iul.solutions\/blog\/?p=158"},"modified":"2026-08-13T11:04:37","modified_gmt":"2026-08-13T15:04:37","slug":"how-an-executive-bonus-plan-works","status":"publish","type":"post","link":"https:\/\/iul.solutions\/blog\/how-an-executive-bonus-plan-works\/","title":{"rendered":"How an Executive Bonus Plan Works"},"content":{"rendered":"

Executive Benefits Series — Part 3<\/em><\/p>\n

An IRS Section 162 Executive Bonus Plan<\/strong> allows a business to reward and retain a key employee by providing additional compensation that helps fund a personally owned life insurance policy.<\/p>\n

The concept is straightforward:<\/p>\n

    \n
  1. The employer selects the employee who will participate.<\/li>\n
  2. The employer determines the amount of the annual bonus.<\/li>\n
  3. The employee owns the life insurance policy.<\/li>\n
  4. The employee uses the bonus to pay the policy premium.<\/li>\n<\/ol>\n

    Because the bonus is generally treated as taxable compensation to the employee, the employer must also decide how the employee’s estimated tax obligation will be addressed.<\/p>\n

    The biggest difference between a single-bonus and double-bonus arrangement is not the life insurance policy. It is how the employer chooses to address the employee’s tax obligation on the bonus and whether the employee receives the full intended value of the benefit.<\/p>\n

    The Employer Selects the Employee<\/h2>\n

    An Executive Bonus Plan does not need to be offered to every employee.<\/p>\n

    The employer determines which employees will participate and the amount of the bonus each employee will receive.<\/p>\n

    This flexibility allows the business to tailor the plan to its objectives, budget, and key employee retention strategy.<\/p>\n

    The Employee Owns the Policy<\/h2>\n

    The employee applies for and owns the life insurance policy. The employer provides the bonus, and the employee uses those funds to pay the policy premium.<\/p>\n

    Depending on the policy’s design, it may provide life insurance protection and the potential to accumulate cash value over time.<\/p>\n

    Because the employee owns the policy personally, the benefit may continue beyond employment, subject to the terms of any agreement between the employer and employee.<\/p>\n

    Single Bonus or Double Bonus?<\/h2>\n

    For this example, both arrangements use the same assumptions:<\/p>\n