PSI Ohio Insurance Practice Exam

What is a nonqualified life insurance plan established by employers to reward key employees?

1. Key Employee Plan

2. Executive Bonus Plan

3. Group Life Insurance Plan

4. Retirement Bonus Plan

The correct answer is: Executive Bonus Plan

An Executive Bonus Plan is a nonqualified life insurance plan that employers establish primarily to reward and incentivize key employees. This type of plan allows employers to provide a bonus to these employees, who can then use the funds to purchase a life insurance policy. The employer typically pays the premium directly or provides the employee with additional compensation to cover the cost. This method provides a tax advantage for both the employer and the employee, where the premium payments made by the employer are generally tax-deductible as a business expense. For the employee, the bonus received can be allocated to life insurance, which accumulates cash value, offering both immediate and long-term financial benefits. Understanding how this plan differentiates from other options is important, as a Key Employee Plan might focus more broadly on basic protections rather than specific bonuses for life insurance. Group Life Insurance Plans are typically offered to all employees as part of a benefits package rather than being tailored to key individuals, and a Retirement Bonus Plan generally focuses on retirement benefits rather than life insurance rewards specifically.