Executive at Their Desk

Business Insurance

While we often think of insurance policies in the personal context (such as life, auto or homeowners policies), insurance can also play a vital role in the existence and continuation of a business. Insurance can be used to cover a business' property. While this can be extremely valuable, many business owners will tell you that their most valuable assets are their employees. Insurance can help in this area, too, serving an extremely valuable role in covering your employees, in addition to your business property.

Key Employee Insurance

If something happened to your most valuable employee and he/she could no longer work, your business could suffer financial damage. Insurance can be purchased on the lives of your key employees to prepare for the potential lost business and/or efficiency that could impact the business in the future.

Executive Bonus Plans

Insurance can also be purchased to benefit an employee and could come in numerous forms. The executive bonus plan (called a Section 162 plan) involves insuring the life of a critical employee with a policy purchased and paid by the business. Not only can this serve as a method of helping your business retain that employee, but the company may also receive a current income tax deduction under Section 162 of the Internal Revenue Code for the premiums that the business paid.

Deferred Compensation

Deferred compensation plans come in many different types. The most common are qualified plans, such as 401(k) plans, but deferred compensation can also be non-qualified.

A qualified plan is one that meets the standards for receiving favorable tax treatment under the Internal Revenue Code. A nonqualified plan, which differs from a qualified plan in that it does meet the tax qualification requirements of Section 401 of the Internal Revenue Code, allows an employee to defer the receipt of taxable wages or bonuses until some future year when the employee expects to be in a lower tax bracket, thus allowing him/her to pay less taxes when he/she receives the compensation. Nonqualified plans are easier to set up than qualified plans, but there are very specific rules that the business must follow to achieve the objective of deferring an employee's taxable compensation. All nonqualified plans must meet three criteria:

  1. The business and the employee must make the arrangement before the employee earns the compensation.
  2. The deferred compensation cannot be available to the employee until a previously agreed upon future date or event.
  3. The amount of the deferred compensation cannot be sheltered from the employer's creditors.

Again, these arrangements are used as a benefit to the employee, which helps to bind them to your organization. Cash accumulating insurance can be a wonderful and cost-effective method of funding the program.


This Web site is intended for general information purposes only. It does not nor is it intended to constitute legal, tax or investment advice. United Financial Systems, Corporation is not a lawyer, registered investment advisor or investment advisor representative, and is not engaged in the practice of law or the business of investment advice.