What is a nonqualified life insurance plan established by employers to reward key employees?

An Executive Bonus Plan is a nonqualified life insurance plan that employers establish primarily to reward and incentivize key employees. This type of plan allows employers to provide a bonus to these employees, who can then use the funds to purchase a life insurance policy. The employer typically pays the premium directly or provides the employee with additional compensation to cover the cost.

This method provides a tax advantage for both the employer and the employee, where the premium payments made by the employer are generally tax-deductible as a business expense. For the employee, the bonus received can be allocated to life insurance, which accumulates cash value, offering both immediate and long-term financial benefits.

Understanding how this plan differentiates from other options is important, as a Key Employee Plan might focus more broadly on basic protections rather than specific bonuses for life insurance. Group Life Insurance Plans are typically offered to all employees as part of a benefits package rather than being tailored to key individuals, and a Retirement Bonus Plan generally focuses on retirement benefits rather than life insurance rewards specifically.