One of the easiest ways to fund your personal life insurance policy is by establishing an Executive Bonus Plan. Under IRC Section 162, your corporation can create an annual bonus to fund your premium. The bonus is tax deductible to your corporation. It is treated as income to you. In most circumstances, your personal income tax bracket is lower than your corporation’s. It is also a good way to zero out your corporation and reduce your retained earnings.

Most executive bonus plans utilize cash value accumulating insurance policies. This is done so that each year a portion can be withdrawn to pay for any personal tax created by the bonus. Thereby, your corporation pays the premium and gets the deduction for your personal life insurance policy. The cash value inside the policy pays any income tax liability you may have. This is a creative planning tool for corporate owners which greatly reduces your net cost for life insurance.