Which arrangement is described as the employer offering to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee?

Which arrangement is described as the employer offering to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee?

• A. Executive bonus
• B. Term life insurance
• C. Stock redemption
• D. Key person insurance

Answer: (C)

The idea being tested is an executive bonus arrangement. In this setup, the employer pays the premium on a life insurance policy on the employee as a form of compensation. That premium payment is effectively a wage-like bonus to the employee, so the employee’s overall compensation increases by the amount of the premium. The employee typically owns the policy, and the death benefit goes to the beneficiary chosen by the employee, not to the employer. This makes executive bonus a way to provide life insurance coverage tied to compensation, often used to attract or retain key staff. It differs from other uses of life insurance in business, such as stock redemption or key person insurance, where the owner or beneficiary is the company or the plan is designed to fund a buy-sell arrangement rather than to augment the employee’s compensation.

The idea being tested is an executive bonus arrangement. In this setup, the employer pays the premium on a life insurance policy on the employee as a form of compensation. That premium payment is effectively a wage-like bonus to the employee, so the employee’s overall compensation increases by the amount of the premium. The employee typically owns the policy, and the death benefit goes to the beneficiary chosen by the employee, not to the employer. This makes executive bonus a way to provide life insurance coverage tied to compensation, often used to attract or retain key staff. It differs from other uses of life insurance in business, such as stock redemption or key person insurance, where the owner or beneficiary is the company or the plan is designed to fund a buy-sell arrangement rather than to augment the employee’s compensation.