Retain key employees with an executive bonus plan

Successful business owners know the key to successful business is their people. An executive bonus program funded with permanent life insurance can be a great way to help business owners recruit, retain, and reward key employees.

How does it work?

An executive bonus plan allows business owners to choose the participants in the plan and is typically simple to administer. Under the plan, the key employee owns life insurance on his or her life and selects a policy beneficiary. The business pays the premium (typically through a salary bonus) in accordance with a written agreement with the employee. The employee typically pays tax on the bonused premium amounts. 

Additional benefits

The employee enjoys the security of life insurance coverage while having access to the policy’s cash value in a standard executive bonus design. And when properly structured, cash bonused to pay the policy premiums is tax deductible to your business assuming IRS guidelines are met.


If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals from life insurance policies classified as modified endowment contracts may be subject to tax at the time the loan or withdrawal is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply. Withdrawals and loans reduce the death benefit and cash surrender value.

This provides general information that should not be construed as specific tax or legal advice nor the law of any particular state. Clients should seek the advice of a qualified tax or legal professional for their specific situation.