A 162 Executive Bonus plan allows a business to provide life and/or disability income insurance to key executives using tax deductible dollars. Insurance policies are owned by the executives and are paid for through cash bonuses to the executives. In practice, the business may actually pay the premiums directly to the insurance company, then include the amounts in the executives’ reported W-2 income.
The executive has all of the ownership rights of the policy, including the right to name his or her own beneficiary(ies) and to access the policy cash values (except when a Restricted Executive Bonus Arrangement is used, as explained below):
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