With Split Dollar Insurance

Employers often want to help themselves and their key employees obtain additional life insurance protection. Some key employees, however, don't want their taxable pay substantially increased.

Employers may also want to control part of the policy cash values and death benefits of that additional insurance. Plus, they may want to recover all or part of their costs in providing the coverage maybe not right now but later, when an employee retires or dies.

Split Dollar is a solution that lets employers assist employees in the purchase of their personal life insurance,

How It Works

In a Split Dollar program, you and your key employee agree to share the rights and premium payments of a permanent, cash value life insurance policy. The premium can be split in many different ways as can the cash values and death benefits. Split Dollar arrangements are very flexible.

Let's look at one popular type of Split Dollar program collateral assignment. With this type of program, the employee is the owner of the policy, and names a beneficiary of his or her choice, You, as the employer, receive a collateral assignment for the amount of the policy cash value and death benefits equal to the premiums you pay on the policy. If you and your employee decide to terminate the insurance policy while the employee is still alive, you are entitled to receive your interest in the policy from the cash value. The rest of the cash value belongs to your employee,

If the employee dies while the insurance policy is still in effect, you are entitled to receive your interest from the death proceeds. Your employee's beneficiary receives the remaining policy death proceeds income tax‑free.

Taxation

The premiums your business pays on the life insurance policy are not deductible. However, the program can be designed so that you recover your premium payments tax‑free when the insurance policy terminates, or if the employee dies while it is still in effect.

Your key employee reports as income the value of the pure insurance protection (also called economic benefit) received plus the value of any other benefits received under the policy (for example, policy dividends received in cash) less the employee's contribution to the program, if any.

Employer Advantages

A Split Dollar program allows the employer to provide supplemental life insurance benefits to key employees on a selective basis. You decide who is covered; it is easy to communicate and administer,

Your business may recover its entire premium contribution at death or insurance policy termination. In the meantime, you have control over the part of the death benefit and cash value that represents the premiums you have paid into the policy.

Employee Advantages

The Split Dollar program provides your key employee with permanent insurance protection. In addition, cash values over and above the employer's cumulative premium payments belong to the employee. And after retirement, policy cash values can be used to provide supplemental income.

Split Dollar arrangements are very flexible. They can be structured to meet many different employer objectives. Split Dollar programs, like Executive Bonus programs, can provide both pre- and post retirement death benefits.

Split Dollar Benefit For Key Employees

In today's competitive marketplace, executive benefits programs help attract top people. These programs provide additional benefits for business owners and key employees on a selective basis.

Executive benefits are appealing: the employee receives an added benefit. And with some concepts, including split dollar, the business may recoup all or part of its cost upon the employee's retirement or death.

With collateral assignment split dollar, the company pays all or part of the premium for a key employee's life insurance policy. The business is assigned a portion of the death benefit and policy cash values equal to premiums the employer pays. The employee's current cost is determined by the current economic benefit, which is based on the employee's part of the death benefit.

At a future date, usually when the employee retires, he or she uses policy cash values to repay the premiums the company paid. The split dollar agreement is terminated, and the policy and its benefits belong solely to the employee.

A split dollar program is a great way to provide valuable life insurance for yourself and key employees. It's also a great way to improve your key employee compensation package.