Executive Bonus Plans: Tax Deductible Life Insurance Premiums in Section 162

Presented by Brokers Alliance with guest co-host Ken Davis.
Tax Deductible Life Insurance with 162 Non-Qualified Supplemental Retirement Plans
A IRC Sec. 162 executive bonus plan is a method of compensating selected key employees by paying the premiums of a life insurance policy on the employee's life. Some Requirements to Make the Plan Work:

Employer cannot be the beneficiary, either directly or indirectly, of the insurance. See IRC Sec.
264(a)(1). The amount of the premium is additional compensation to the executive. (Subject to unreasonable compensation rules.) There should be a written agreement between employer and employee. Executive must pay current income tax on the amount of the net premium paid by the employer. (Employer can bonus the extra money needed to pay the tax or it can be paid by policy loans or withdrawals.) Benefits to Employer Can reward key executives. Selective participation is allowed (no discrimination rules). Premium costs are tax-deductible.

Creation of plan is simple. No administration. Amounts of coverage on various employees can differ.
Plan can be terminated without IRS approval or restrictions.

Benefits to Executive
Executive owns the policy and cash values. If he or she changes employers, the policy is not lost. Accumulating cash values will help in emergencies, at retirement or for personal investments.
The death benefit may be income tax free. See IRC Sec. 101(a). Proceeds may be used for estate settlement costs.

Tax free income is generated by withdrawals of basis conforming to the TAMRA provisions of the Force Out Rule and policy loans of gain calculated each year based on policy performance and kept in force for the life of the insured.

[frankdamelio]

Great interview! I’m hiring a rainmaker and this is a great fit.

[lyyang]

Can the main chef also the owner of a restaurant, falls in the key employee?

[tufftractor]

I watched it twice and as far as I can tell you fail to explain the difference between just paying the employee directly and a 162 plan. I mean other than the commission you get from selling the insurance