With a 162 bonus plan, the employer effectively funds an employee’s purchase of life insurance through the payment of bonuses to the employee. This allows owners to provide critical benefits to key employees. The key element of this plan is that the employee acquires and owns all rights in the policy and the employer is able to write off the policy expense.
The employer in a 162 bonus plan does not anticipate reimbursement of any premiums paid, is not a direct or indirect beneficiary of the policy, and never owns an interest in the policy. This way, the employee gains long term benefits, no matter if employment is retained.