An Executive Bonus Plan can be an essential component of any business, non-profit, or religious organization’s Executives and Key Employees reward and retention plan.
An Internal Revenue Code Section 162(a) Executive Bonus Plan provides Executives and Key Personnel essential benefits that address the 3-life scenario What If’s of all Americans:
3-Life What If’s:
- Retirement Savings: All Americans need to have adequate retirement savings that eliminates Longevity Risk, which is the risk of running out of money, or outliving your retirement savings.**
- Getting Sick Along the Way: The best of health insurance plans may only cover 90% of medical expenses, and the remaining 10% of uncovered bills can be large 6-figure bills. Treatment for a diagnosis such as cancer may not only attack your body, it can destroy your bank account. If you’re sick and can’t work, how will you pay your bills? Living Benefits* can provide the financial benefits needed when diagnosed with a qualified Critical, Chronic, or Terminal illness such as a heart attack, stroke, or cancer.
- Dying too Soon: If you’re gone, and your income is gone, how will your family survive financially.
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Premiums paid by Businesses or Organizations for an Index Universal Life (IUL) policy which may resolve these 3-life What If’s may be a deductible business expense, a win-win for the Business and Executive or Key Employees.***
Keep Key Employees Happy with Help from a Life Insurance
Executive Bonus Plan
An Executive Bonus Plan can help employers recruit, reward, and retain top talent by offering key employees an additional benefit using cash value life insurance.
Under the terms of a written legal agreement, the employer covers the cost of the life insurance policy by either paying the premiums directly to the insurance company or by way of a cash bonus allowing employees to pay the policy premiums themselves. Generally, these payments are deductible by the employer, and considered additional taxable compensation to the employees.[1] The key employee owns the life insurance policy, designates the beneficiary, and may access other benefits such as cash value and accelerated benefits.
Why Life Insurance:
Bonus plans funded by life insurance hold all of the same benefits as an individually-owned policy, but are funded by the employer. The cash value grows tax-deferred, and income can be tax free if structured property. [2]
How it Works:
Benefits:
Employer
- Potentially more tax-efficient way to reward top talent.
- Easy to communicate and maintain due to its simple and flexible design.
- Provides employees additional compensation at a fraction of the current cost to the employer.
- Depending on the plan design, “golden handcuffs” can reinforce the mutually beneficial relationship to keep key employees with the company
Employee
- Provides long-term financial incentives.
- Helps to narrow the retirement income gap for highly-compensated employees, offering another financial vehicle that isn’t subject to qualified plan limits.
- Protects families of key employees in the event of their death.
- Offers access to living benefits in case they get sick with a Critical, Chronic, or Terminal illness.
Types of Bonuses:
Single
- Paid into the life insurance by employer.
- The key employee pays any taxes due on that bonus.
Double
- Paid into the life insurance by the employer.
- The key employee pays any taxes due using additional bonus money paid by the employer.
Contact a Triumph Financial Services agent and let’s get to work ensuring you have a bright tomorrow. 571-552-7256
[1] Deductions are subject to reasonable compensation restrictions (Internal Revenue Code Section 162(a). Subject to state availability. Certain restrictions may apply. Issuance may be dependent on answers to the health questions on the application.
2 Surrenders, withdrawals, and loans will reduce available death benefit and may be subject to surrender charges. Surrenders and withdrawals beyond basis may be taxable income and subject to penalties if taken prior to age 59½. Excessive and unpaid loans will reduce policy values and may cause the policy to lapse. In order to receive favorable tax treatment on distribution made during the lifetime of the insured (including loans), a life insurance policy must satisfy a 7-pay premium limitation during the first seven policy years. A new 7-year limitation will be imposed after certain policy changes. Failure to satisfy this limitation would cause your policy to be considered a Modified Endowment Contract (MEC).
[1] Information provided regarding tax or estate planning should not be considered tax or legal advice. Consult your own tax professional or attorney regarding your unique situation.
[2] Living Benefits availability vary depending upon policy type and state of residence. Ask agent to verify availability of Living Benefits.
*Living Benefits availability vary depending upon policy type and state of residence. Ask agent to verify availability of Living Benefits.
**Deductions are subject to reasonable compensation restrictions (Internal Revenue Code Section 162(a). Subject to state availability. Certain restrictions may apply. Issuance may be dependent on answers to the health questions on the application. Surrenders, withdrawals, and loans will reduce available death benefit and may be subject to surrender charges. Surrenders and withdrawals beyond basis may be taxable income and subject to penalties if taken prior to age 59½. Excessive and unpaid loans will reduce policy values and may cause the policy to lapse. In order to receive favorable tax treatment on distribution made during the lifetime of the insured (including loans), a life insurance policy must satisfy a 7-pay premium limitation during the first seven policy years. A new 7-year limitation will be imposed after certain policy changes. Failure to satisfy this limitation would cause your policy to be considered a Modified Endowment Contract (MEC).
***Information provided regarding tax or estate planning should not be considered tax or legal advice. Consult your own tax professional or attorney regarding your unique situation.