Employers are always looking for new ways to keep their employees satisfied. Different companies have tried incentive plans, bonuses, or shorter hours, but there are some businesses that are going even further than that and offering executive bonus plans to keep some of their employees satisfied.
There are millions of businesses that provide life insurance plans for their employees. For a lot of companies, they provide them with a small amount of insurance coverage, usually around the $10,000- $25,000, but some companies offer higher amounts.
They offer these plans to every employee that works with the organization, from the very bottom to the very top. But, there are some companies that provide additional coverage to their employees that are essential to the success of the company. These plans are known at the executive bonus plans, and there are several benefits that the organization can take advantage of, and the key employee gets additional coverage.
What is a Section 162 Executive Bonus Plan?
The plans get their name from the part of the IRS code that allows companies to give special bonus compensation to employees, based on their position. These plans are used to motivate the higher-level employees in the organization to keep them with the company. One of the most common forms of these executive bonus plans is being used to purchase life insurance to key employees.
The company pays the premiums for the life insurance plan, but the employee is the one that benefits from the policy. It’s essentially free life insurance coverage. These plans can be an extremely beneficial tool for both the key employee and the organization if they are used correctly.
These plans are used as a vehicle for a company to offer an executive employee or key person in the organization additional life insurance. With today’s American workers, most employees jump from job to job, and companies are looking for any way possible to keep employees with their organization and keep them satisfied, and offering additional incentives through these bonus plans is an excellent way to do that.
The most common product inside of the executive bonus plans is a whole life policy that accumulates cash value. The plan can be used to provide additional insurance protection for the employee’s family, or used as a tax advantage to supplement retirement income.
There are several different ways that an executive bonus plan life insurance policy can operate. There is the basic type of policy, where the company pays all of the premiums for the plan, but this isn’t the only way that these plans can be offered. Some companies will use a double bonus agreement to pay for their insurance coverage. With these types of deals, the company gives the executive employee a bonus that is large enough to pay the premiums and associated taxes. This ensures that the employee won’t have to pay for any expenses out-of-pocket.
The other type of executive bonus plan life insurance that could be set up is a controlled executive bonus plan. This will give the company some control over the plan, but still gives enough incentive to the employee.
With this type, the company has control over the availability of the cash value of the policy until the executive employee has met the agreed upon goal, which is typically a number of years staying with the company. After that have fulfilled the agreement, the cash value component, and the insurance policy are in the employee’s control.
The Flexibility of Executive Bonus Plans
The company will give the employee the flexibility to choose which type of policy and coverage fits their needs the best. The company is going to provide the executive bonus plan to fund the policy, and the employee has control of the type of policy, but as we mentioned, the most common choice is the whole life insurance plan.
The executive employee already has life insurance coverage from a personal policy, which means they have very little need for more coverage amount, but having the cash value component is a nice supplemental benefit that they don’t get through a personal term policy.
Advantages of Executive Bonus Plans
There are a lot of benefits to a company offering an executive bonus plan to individual employees. The obvious advantage is that they can pick and choose which employees they offer the coverage to and which ones they don’t. They can reward the workers that have been going above and beyond their expectation while giving other employees something to work towards.
While the plans might sound complicated to someone outside of the insurance world, they are simple and quick for a business to set up. The insurance company can walk you through the process to ensure that everything is handled correctly.
For the company, they can deduct the expenses for the insurance bonus, which is a nice tax advantage. It’s another way for the company to give bonuses but also be advantageous to the company as well.
For the key employee, they are allowed to retain ownership of the policy and name the beneficiary of the policy payout. Typically this is going to be a spouse or a child, not the company that they work for.
The Importance of Life Insurance
Regardless of through an executive bonus plan, or through a private plan, life insurance is one of the most important investments that you’ll ever make for your family. It’s vital that you have enough coverage for your loved ones. Because the majority of companies offer insurance plans for their employees, most Americans assume they have enough life insurance, but most workers are drastically under-insured.
There are several factors that you need to consider to determine if you have enough life insurance, either through your employer or personally. The first aspect is your debt.
The main goal of your policy is to pay off any debts that you would leave to your family. Add up all of your unpaid expenses like your mortgage, car payments, funeral costs, and anything else your loved ones would be responsible for, and this is a starting point for your life insurance needs.
The secondary goal of your life insurance plan is to replace your income if you were to pass away. If you’re the main income earner in your household, your loved ones would struggle if they no longer had your paycheck, and paying for necessary expenses could become difficult. With a life insurance plan, your family would have the resources they need to replace your salary and not sacrifice their standard of living or add any additional financial stress to their lives.
If you have any questions about executive bonus plan life insurance or about any of the possible life insurance options, please contact us today. We would be happy to answer those questions and ensure that you have the coverage that your family is going to need.
Don’t wait any longer to get the peace of mind knowing your family will be taken care of, regardless of what happens to you. Our agents can help you find the perfect insurance policy at an affordable rate.