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Using IUL for Executive Bonus Life Insurance

indexed universal life for executive bonus plans
Insurance Quotes 2 Day Team

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

 6 minute read

In today’s world, changing jobs is not a monumental undertaking. The concept of staying at one job for 30-years is pretty are. In fact, the average person will change jobs anywhere from 10 to 15 times during their career. Most Americans works will spend less than five years at every job. If you’re looking for some ways to keep your employees and make them as happy as possible, executive bonus life insurance plans are an excellent way to do it.

Many business owners are aware that executive bonus plans can be a valuable employee retention tool. What many business owners don’t know is that indexed universal life insurance can be a great vehicle for funding these bonus plans. Using indexed universal life for executive bonus plans is a great way to secure the future of your business.

We are all familiar with the basic types of life insurance, but indexed universal life is really making the scene when it comes to business planning. Although originally introduced in 1997, we are really seeing the growth of this multi-functional life insurance product explode today.

So what is an executive bonus plan? A bonus plan is set up by an employer to reward specific employees or even themselves. Executive bonus plans are discriminatory, meaning that you can pick and choose who you want to be in the plan. The owner will typically purchase an indexed universal life insurance policy on the employee and pay the premium. The money to pay the premium is considered bonus income to the employee so the owner gets a tax deduction in the amount of the bonus. This will work for all forms of businesses, C-Corp, S-Corp, LLC, etc.

Several executive bonus life insurance plans use IUL Every business is different and might make some unique twists on their executive bonus plans and the benefits they provide, but some of the common plans are,

  • Non-Qualified Executive Bonus Plans
  • Split Dollar Compensation Plans – with these policies, there is an agreement between both the executive (company) and the employee. The agreement outlines how much each party will pay of the premium, how much each party gets of the death benefit and how much they receive of the cash value.
  • Deferred Compensation Plans – these plans can provide some additional retirement income. With a deferred compensation plan, the company defers a portion of income, which is usually bonus income. The deferred money can build up without taxes, and then withdrawn in retirement with normal income tax.

All of these executive bonus plans have different advantages. While they are all slightly different, the one similarity is they can all use indexed universal life insurance for the plans.

Indexed universal life insurance is pretty much the same as its well-known cousin, universal life insurance. The major difference is the way interest is credited in the policy. Indexed universal life has evolved from its original state and become more of a cash accumulation life insurance policy. Interest is credited to the policy based on the performance of stock market indexes such as the S&P 500, NASDAQ, DOW and some foreign stock markets that funds are allocated to.

The cash value of the policy can only increase due to the fluctuations in the market. The policy will never lose money because of drops in the stock market. This makes for a great story when you look at what has happened over the last 20 years of investing.

Can you imagine what your investments would look like if you never had a losing year?

 

indexed universal life for executive bonus plans

Who benefits?

Executive bonus plans are a great way for owners to compensate key employees by providing a combination of benefits that will help retain that employee.

  • Cash value accumulation that can be used in retirement or even surrendered for a lump sum
  • It can provide lump sum payments if they become sick or experience catastrophic events
  • Life Insurance – pays their family a lump sum when they die

This will not only benefit your employee, but also your business by helping to retain valuable employees. Keeping those key employees will strengthen vendor relationships and protect against the loss of earnings and key accounts. Imagine the employee morale this will create. The key employee will receive a valuable life insurance policy with all of the above mentioned benefits for practically no out-of-pocket cost. Since the key employee is the owner of the policy, there is no restriction on how they use the policy.

Why Indexed Universal Life Insurance?

Executive bonus plans are essentially a non-cash benefit with the idea of increasing the morale and retention of key employees. Most benefits must be offered to all employees – not executive bonus plans. Again, the owner can pick and choose exactly who gets the benefits. The executive bonus plan allows the business to take a tax-deduction for every penny that they bonus to the key employee. Not only does the business benefit but the key employee benefits from the added life insurance and access to an additional tax-free income stream during retirement.  This makes IUL a great option for executive bonus plans.

Indexed universal life for executive bonus plans: how does this work?

Very simply! The employee will apply for the indexed universal life insurance policy. Once approved, we can help you set up an executive bonus arrangement.  This concept is very common and can be set up very easily. The business can either pay the premium directly to the life insurance company for the policy or they can pay the bonus to the employee. The employee receiving the bonus will be taxed on this additional amount and the business gets the deduction for the amount paid.

The benefits in the policy can be used at any time by the employee. The death benefit will bring peace of mind to the family of the employee. Any cash value in the policy can be used while they are living. If the employee were to leave employment, become disabled or just need financial help, the cash value could be used to assist with the financial impact of any unexpected misfortune.

You have worked hard to get to where you are today. It’s not easy to achieve success. Executive bonus plans can help you grow your business by securing the allegiance of those employees that matter the most, showing your appreciation for their loyalty and dedication. 

We can help you structure a plan that works for your business. 

Use the quote form or call us at 1-800-712-8519 to learn more.

Key Man Life Insurance

If you’re looking for a way to protect your business, regardless of the size, key man life insurance is an excellent way to do it. You can use key man life insurance to ensure your business will continue to thrive, in the event you were to pass away early in your career. This is especially true if you’re a small to medium-sized business.

How would your business replace all of the jobs and duties you do every day? Would your company be able to replace your quickly enough before they had to shut down? That’s where your key man life insurance comes in.

These plans operate just like a normal insurance policy, except the money will go to the business if something were to happen. You can purchase one of these policies for any of the key people in your business or organization.

With these policies, the business will purchase the policy and pay the premiums. If you or the person who is insured were to pass away, the money goes straight to the business. One of the benefits of a key man life insurance compared to an IUL policy is they are going to be much cheaper. If you can’t afford to do a split dollar policy, then a key man policy will fit your business goals just fine.

 

Frequently Asked Questions

Can I use Indexed Universal Life insurance for an executive bonus plan?

Many business owners are aware that executive bonus plans can be a valuable employee retention tool. What many business owners don’t know is that indexed universal life insurance can be a great vehicle for funding these bonus plans. Using indexed universal life for executive bonus plans is a great way to secure the future of your business.

Is buying key man insurance a smart move?

If you’re looking for a way to protect your business, regardless of the size, key man life insurance is an excellent way to do it. You can use key man life insurance to ensure your business will continue to thrive, in the event you were to pass away early in your career. This is especially true if you’re a small to medium-sized business.

Can indexed universal life insurance be used for an executive bonus plan?

Yes! The employee will apply for the indexed universal life insurance policy. Once approved, we can help you set up an executive bonus arrangement.  This concept is very common and can be set up very easily. The business can either pay the premium directly to the life insurance company for the policy or they can pay the bonus to the employee. The employee receiving the bonus will be taxed on this additional amount and the business gets the deduction for the amount paid.
author avatar
Doug Mitchell, CLU Independant Advisor
Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent almost 30 years in the life insurance industry and has also held licenses to sell securities, long-term care insurance and home and auto insurance. Doug is a Top of the Table Million Dollar Round Table member (MDRT).  MDRT is a global, independent association of the world's leading life insurance advisors.  For two years, Doug served as President of the Auburn Opelika Association of Financial Advisors and has been a member of the Million Dollar Round Table. He obtained Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award. Later in his career with New York Life he was an Executive Council Member. Doug currently serves as President of Ogletree Financial, a managing general agency serving life insurance agents and clients in all parts of the United States. Today, Doug’s main focus is servicing 1000s of policyholders and growing the agency through the reach of  insurancequotes2day.com.