Consider adopting an Executive Bonus Insurance Plan to Assist Key Employees to Purchase Life Insurance
What is an Executive Bonus Insurance Plan?
Very simply, an Executive Bonus Insurance Plan (also referred to as a "Section 162 Plan") is a life insurance policy purchased by you, the employer, for the benefit of selected key employees. It allows you to use company dollars in the form of a "bonus" to pay for personal life insurance needs of key employees, including:
Family survivor income
Supplemental retirement income
It works this way:
The company chooses the employee(s) who will participate in the plan, and determines the bonus amount that will be paid for policy premiums. The employee applies for, and owns, the life insurance policy, and the employee has the right to designate the beneficiary(ies) of the policy. The company pays the "bonus" premium directly to the insurance company. The employee's right to receive the cash value
of the policy through loans, withdrawals, or surrender can be subject to a vesting schedule based on age, years of service, or other conditions agreed upon by the company and the employee. If the employee terminates employment prior to becoming fully vested, the company is repaid some or all of its "bonus" premiums from the policy's cash value.
Contact us to find out how this plan can work for small business owners and generate substantial retirement income. This can be used in conjunction with the Premium Finance Plan.
Life Insurance Premium Financing-an Innovative Method to Pay for Substantial Life Insurance Coverage
Those who need substantial life insurance coverage to fund business or financial planning objectives must determine how to pay the premiums for these large policies. Traditionally, there were two ways to pay the premiums:
1. Use current cash flow to pay the premiums as they come due; or
2. Liquidate current assets and prepay the premiums.
These choices required individuals to either divert current income or reduce their ability to accumulate wealth in order to fund their life insurance needs. Neither choice was satisfactory. Fortunately, today there is a third choice: Life Insurance Premium Financing.
Life Insurance Premium Financing is a strategy that uses loans to fund the payment of premiums. The lender is usually a third party premium finance company. The parties execute a premium finance agreement that sets forth the terms and conditions of the premium loan. The premium finance agreement should last so long as the life insurance policy is in effect and require the premium finance company to pay the premiums as they come due. As with any loan, interest is charged. The interest can be paid as it accrues or, in some cases, added to the principal of the loan. As a result of the premium policy loan, there is no change in the ownership of the policy but the policy is subject to a lien for the amount of the premium policy loan. Often, additional collateral secures the loan.
As with any strategy, the details of the agreement determine the benefits of a premium financing arrangement.
This strategy is ideally suited for use with the Executive Bonus Plan.
Contact us for more information on this effective plan.