Life Insurance Sales: Section 162 Executive Bonus Plans

Are You Selling To Small Business Corporations?

There's a big market for life insurance sales to small business owners with "C" corporation status - or LLCs filing as "C" corporations.

It's showing them how to use tax-deductible corporate dollars to fund tax-free retirement income for only the business owner himself - and if they choose, a few of their key people as well.

Because many small companies have set up 401k plans for all their employees.

But the "top-heavy" rules, strictly limit the "highly compensated" employees to how much they can contribute - based on what the "non-highly compensated" employees contribute.

So most of these companies can afford and want to contribute more than these plans allow for the benefit of their highly compensated executives - even if it's only the owner.

And since 401k plans have become the predominant qualified retirement plan for companies of all sizes - the market is relatively vast AND untapped.

But these sales are not complicated, or dependent on legal documentation, or subject to ERISA.

In fact, they're quite simple, and can be installed very easily.

They're known as a "162" Bonus plans - referencing section 162 of the Internal Revenue Code.

Which essentially stipulates that bonus compensation is tax-deductible as a business expense - and that any such bonus compensation can be selective and discriminatory.

Which means that it can be paid only to otherwise highly compensated employees (i.e. executives).

That's why they are often referred to as "Executive Bonus" plans.

Here's How It Works:

The owner or executive owns the policy, but the corporation funds it with a tax-deductible bonus - paid directly into the contract annually or quarterly.

And that bonus money is taxable to the executive for the year in which it goes into the contract.

However, 100% of the growth on that money (every year thereafter), and 100% of all the money withdrawn during retirement can all be tax-free.

Which means that the owner or executive only pays tax on the money going in - but NOT on any of the money coming out - which can be two or even three times as much.

That's Why It Makes Sense.

Because taxation on the bonus is a relatively small concession to accept - in exchange for not needing to include ALL the other employees, and for the ability to withdraw all the growth tax-free.

Life Insurance Sales with Equity Index UL

Executive Bonus plans perform best using Equity Index UL policies (with favorable loan provisions) for obvious reasons:

1) an index like the S&P 500 can simulate a 401k portfolio - but without any market losses

2) cash value loan provisions under code section 7702 enable tax-free retirement income

3) the insurance contract itself is all that is needed to provide the benefits

4) these contracts are inherently adjustable and can be easily modified from year to year

5) plan design can be customized for each executive with various riders