Today, many business owners see the executive bonus plan as one of the most cost-effective fringe benefit plans available for solving personal needs. A quick review will show why. The Double Bonus Plan Stripped of all bells and whistles, an executive bonus plan can be provided as an executive-owned life insurance policy, with premiums paid from the business. In some instances, the executive may choose to withdraw or borrow policy values to pay the tax.
Interest is payable on borrowed funds.
The executive bonus plan is clearly advantageous to both the business and the executive. On one hand, the business can tax deduct life insurance premiums and has total discretion in selecting not only who can participate, but also the amount of premiums and coverage to be provided. However, policy loans incur interest charges and amounts taken out reduce the death benefit. Since the cash values of a life insurance policy accumulate federal tax deferred, it is well-suited for use in executive bonus plans. In addition, the fact that the policy isn't business-owned gives the executive immediate vesting and 100 percent portability.