An executive bonus (Section 162) plan generally works by having:
Explanation
In a Section 162 executive bonus plan, the employer pays the premium on a personally owned life insurance policy for a key executive; the employer deducts the bonus as compensation, and the executive reports it as taxable income but owns the policy and its cash value. The executive does not bear the full cost alone, it is a bonus rather than a loan, and taxes are not deferred, the bonus is currently taxable to the executive. Simplicity and employer deductibility make this a popular executive benefit.
This topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
Practice all 716 questions free — no signup required.
Own the complete California Life & Health Insurance Producer Exam guide — PDF + EPUB, $19.99 →
Related questions on this topic
- Under federal tax rules, employer-paid group term life insurance is income-tax-free to the employee on coverage up to:
- In a cross-purchase buy-sell agreement funded with life insurance, the policies are owned by:
- In an entity (stock-redemption) buy-sell plan, the life insurance is owned by:
- Distributions from a traditional, fully pre-tax qualified retirement plan are:
- A ten percent federal tax penalty generally applies to taxable withdrawals from annuities and qualified plans taken before the owner reaches age:
- Accelerated death benefits paid to an insured who has been certified as terminally ill are generally:
Last reviewed: · editorial process