Section 162 plan is a broader term for compensation strategies that rely on Section 162TMs rule allowing employers to deduct reasonable compensation, often implemented as executive bonus life insurance arrangements. Under a 162 plan, the employer pays bonuses earmarked to fund policies on selected employees, sometimes with additional bonuses to cover income tax. The employee owns the policy, so values and death benefits are generally outside corporate assets, while the employer can informally tie ongoing bonuses to continued employment and performance expectations.

Advisors use Section 162 plans to help business owners reward and retain key talent without the complexity of formal deferred-compensation or qualified plans. They segment eligible employees, size bonuses, and select appropriate permanent products, often with strong cash-value features. Attorneys draft simple plan documents and, when desired, restricted-endorsement agreements that limit access to policy values during employment. Understanding Section 162 plans enables advisors to frame them as flexible, customizable executive-benefit tools that integrate insurance, tax planning, and retention goals for closely held businesses.