Saturday, June 15, 2024

What Is Executive Bonus Life Insurance?

Executive bonus life insurance
Executive bonus life insurancev

A useful tool for both recruiting and retention is an executive bonus life insurance plan. How does executive bonus life insurance work, though? In an executive bonus life insurance plan, who is the policy’s owner? How does a bonus plan for executives operate? Is a bonus program for executives taxable? Here, will address all of these concerns and more

What is executive bonus life insurance?

Executive bonus life insurance
Executive bonus life insurance

Individuals in C-suite roles, such as chief executives, operations executives, or chief financial officers, may be eligible for executive bonus life insurance, also known as 162 executive bonus plans. With one in place, a company is able to offer tax-advantaged life insurance to a specific important individual or group of high-performing employees.

This often means that, as long as the incentive is regarded as acceptable remuneration, a corporation can fully deduct the cost of executive bonus life insurance premiums, even though the plan is still held by the executive. Given that the key employee is the policy’s owner, they are free to select their own beneficiaries for the death benefit. They might also have tax-favored access to the policy’s cash value.

How does an executive bonus plan work?

A Section 162 bonus plan is very flexible and can be set up in a variety of ways. Here is a general description of how it is carried out:

  1. Key executive or employee is covered by a permanent or universal life insurance policy purchased by the employer.
  2. Either the employee receives the money to pay the premiums or the employer pays them with a tax-deductible bonus.
  3. The key employee takes ownership of the life insurance policy and decides who will get the death benefit.
  4. The employee can use the policy’s cash value to pay for personal expenses after retirement. The surrender cash value of the policy can potentially be available to the recipient.

How can executive bonus life insurance benefit your business?

Executive bonus life insurance
Executive bonus life insurance

Executive bonus life insurance’s effectiveness as a retention strategy is one of its main benefits. By providing more life insurance, it may discourage your talent from considering changing jobs. Right now, a lot of people are embracing job offers as they come in rather than just contemplating about finding another position. The remuneration offered for these roles in comparison to their prior or current company is one factor in this.

In other words, their current employers are struggling more to keep them than competitors are to hire them. For instance, according to data from the Federal Reserve Bank of Atlanta, those who ended up accepting a new job in June 2022 earned 6.4% more than they did in their prior one. The income gap for job changers has never been as significant in the past 20 years.

According to Youngseok Shin, an economics professor at Washington University in St. Louis, there is a higher incentive for consumers to look for better opportunities because the typical dollar is now purchasing less due to inflation.

Shin said. “They are comparing the headline inflation numbers with their wage growth.”

According to data from the Bureau of Labor Statistics cited by the Journal, through the first half of 2022, a projected 47 million Americans are currently employed by a different company than they were at the start of the year. Last year, many employees expressed their intention to resign if they did not receive a pay increase or bonus. Nearly one-third of respondents in a Robert Half survey from June 2021 said they would seriously consider finding a new job if they weren’t offered appropriate pay. Working parents had an even higher rate (36%).

Executive bonus life insurance indirectly provides a raise since it offers a policy cash value that may be accessed whenever needed and the corporation pays the premiums through bonus pay.

Incentivizes hard work

Executive bonus life insurance
Executive bonus life insurance

“Bonus” is the operative word when referring to an executive bonus plan. This indicates that you are not providing life insurance as a perk for them working for your company. You are granting access to those who have earned it as a result of their actions. In light of their body of work and contributions to the expansion of the company, you can select which executive is deserving of such a plan.

Offers flexibility

You can make the provision of bonus life insurance a condition of an employee’s continued employment with your company in addition to making it a performance-based requirement. A restricted executive bonus scheme makes this possible.

For a set period of time, whether it be months or years, the employee has restricted access to the policy’s cash value under a restricted executive bonus arrangement. Additionally, if the key executive leaves the company during that time, they are responsible for paying back the policy’s monetary value.

Death benefits are exempt from income tax for beneficiaries. The tax benefits of an executive bonus plan extend beyond your company and benefit the person your employee names as the beneficiary of the life insurance policy. The beneficiary may not be required to pay income tax on the life insurance policy’s death benefit proceeds, depending on how the policy is set up.

Executive incentive schemes can be a solid retention and hiring tool, but you might not have enough money to proceed. Nevertheless, where there is a will, there is a way. Leveraged Planning® serves as a route if you have a will.

Leveraged Planning® from Global Financial Distributors provides your organization with the necessary money it needs to implement an executive bonus plan, including funding for key person policies, business continuity, and bonus life insurance. Get in touch with us right away to learn more whether you operate a business or are a financial expert who provides advice to one.

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