The Use of Permanent Life Insurance for Key Employee Retention (Executive Bonus Plans)

Permanent Life Insurance is a valuable tool for businesses seeking to reward and retain top talent through a strategy known as a **Section 162 Executive Bonus Plan**. This strategy provides a golden handcuff that benefits both the employer and the employee.

How the Executive Bonus Plan Works

1. **The Employer Bonus:** The employer pays the annual premium on a Whole Life or Universal Life policy as a cash bonus directly to the key employee.
2. **Employee Ownership:** The employee owns the policy from day one, gaining access to the tax-deferred cash value growth and the tax-free death benefit.
3. **Tax Treatment:** The premium payment is a deductible business expense for the employer, but it is considered taxable income to the employee.

The policy provides the employee with a valuable, tax-advantaged asset that encourages long-term commitment, as the benefit is generally contingent upon continued employment.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Executive bonus plans have specific tax implications; consult a tax advisor and legal counsel before implementation.