Part of our guide: Long-Term Care Insurance: Costs, Options and Planning →
Business owners want to reward key people without losing them. A controlled (restrictive) executive bonus plan does that with life insurance, and adding long-term care benefits makes it even more valuable to the executive.
Key takeaways
- The employer pays the premium on a policy the key employee owns, and generally deducts it as compensation.
- A restrictive endorsement limits the employee’s access to cash value for a set period, usually 5–15 years, creating “golden handcuffs.”
- Adding an LTC rider gives the executive long-term care protection on top of the death benefit and cash value.
Golden handcuffs with a benefit executives actually value: death benefit, cash value, and long-term care protection in one plan.
How a controlled executive bonus works
A controlled executive bonus, also called a restrictive executive bonus or Section 162 plan, is an agreement between an employer and selected key employees. The employee applies for and owns a permanent life insurance policy and names the beneficiary. The employer pays the premium directly to the insurer as a bonus. A restrictive endorsement, signed by both and filed with the carrier, limits the employee’s right to surrender, borrow, assign, or change ownership without the employer’s consent for an agreed period, typically 5–15 years.
If the employee leaves during the restricted period, the employer’s consent is needed to access cash values, and the employer may require repayment of some or all of the bonus premiums as a condition, subject to the agreement.
Benefits for the employer
- Choose which key employees participate
- No mandatory eligibility or participation rules, and no IRS approval required
- Minimal administration and no government filings
- Bonus premiums are generally deductible as compensation
- Recruit, reward, and retain key people
Benefits for the employee
- Permanent life insurance with an income-tax-free death benefit for their family
- Tax-deferred cash value growth
- Long-term care benefits through the LTC rider
- Full, unrestricted ownership once the restriction period ends
The employee reports the premium as taxable compensation each year. Employers often pay an extra cash bonus to cover that tax, known as a double bonus.
Why the LTC rider matters
Executives often care as much about protecting their savings from a long-term care event as about the death benefit. Including LTC benefits makes the plan more valuable to them at little extra complexity. For the tax side of LTC for businesses, see how LTC insurance provides tax advantages.
Frequently asked questions
What is a controlled executive bonus plan?
A Section 162 bonus arrangement where the employer pays premiums on a policy the key employee owns, with a restrictive endorsement limiting access to cash value for a set period.
Is a 162 executive bonus tax deductible?
The employer can generally deduct the bonus premium as compensation, and the employee reports it as taxable income.
Can an executive bonus plan include long-term care benefits?
Yes. Using a policy with an LTC rider adds long-term care protection for the executive.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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