In an executive bonus plan, who is typically the owner of the life insurance policy and who is responsible for paying the premium?

• A. The employer owns the policy and the executive pays the premium.
• B. The executive owns the policy and the employer pays the premium.
• C. The employer owns the policy and pays the premium.
• D. The executive owns the policy and pays the premium.

Answer: (B)

Verified step by step guidance

1. Understand the concept of an executive bonus plan: This is a type of compensation arrangement where an employer provides funds to an executive to purchase a life insurance policy. The goal is to offer additional benefits to the executive while providing tax advantages.
2. Identify the ownership of the life insurance policy: In an executive bonus plan, the executive typically owns the life insurance policy. This means the executive has control over the policy, including naming beneficiaries and making decisions about the policy.
3. Determine who pays the premium: The employer is usually responsible for paying the premium on the life insurance policy. This payment is considered a bonus to the executive and is often taxable income for the executive.
4. Clarify the tax implications: The premium paid by the employer is treated as taxable income for the executive. The executive may need to pay income taxes on the amount of the premium paid by the employer.
5. Summarize the arrangement: In an executive bonus plan, the executive owns the life insurance policy, and the employer pays the premium. This structure provides benefits to the executive while allowing the employer to offer competitive compensation packages.