Often called an Executive Bonus plan, a Section 162 plan involves the purchase of a life insurance policy on the life of one or more employer-chosen employees. The employer pays premiums on the policy but charges the employee with a bonus in an amount equal to that payment. Here are the appropriate situations to use them in:
- As an alternative for split-dollar coverage.
- When the business is in a relatively high-income tax bracket and wants to provide fringe benefits to selected key employees.
- When an employer would like to carve out large amounts of coverage under the group term life insurance plan and provide individual coverage to specified key employees.
- When an employer seeks a replacement for, or a supplement to, a qualified pension or profit-sharing plan.
Read our Introduction to Section 162 Plans here.
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Reproduced with permission. Copyright The National Underwriter Co. Division of ALM