What is an executive bonus plan using life insurance?

An executive bonus plan (also called a Section 162 bonus plan) is a strategy where a business provides a life insurance policy as an additional benefit to a key employee or owner. The company pays the premium as a "bonus" to the executive, which is deductible to the business as ordinary compensation expense under Section 162 of the tax code.

The executive owns the policy and designates their own beneficiaries. They pay income tax on the bonus amount in the year received, then the cash value grows tax-deferred and can be accessed tax-free via policy loans in retirement.

For Nevada businesses, executive bonus plans serve two purposes simultaneously: providing a competitive retention benefit for key executives and offering those executives a tax-advantaged wealth-building vehicle they can't lose if they leave the company (unlike restricted plans).

Some businesses add a "double bonus" where the company also bonuses the tax amount, making it cost-neutral to the executive. Others use "golden handcuff" provisions where repayment conditions apply if the executive leaves before a vesting period.

Whole life and IUL are the most common products used, given their cash value component. IUL offers indexed growth potential with cap rates typically 8–12% and a 0% floor. Policy fees reduce net returns, and guarantees are backed by the financial strength of the issuing carrier. Agents in our network can model executive bonus scenarios for Nevada business owners.