Split Dollar Life Insurance Policy

A split dollar plan is an arrangement to purchase a life insurance policy. In simple terms, the purchase of a life insurance policy is ‘split’ between two people, one with a need for life insurance and one with the resources to pay for the policy. Specifically, the employer has the resources to help the employee purchase the coverage.

The policy may be owned by the employer or owned by the insured employee. Depending on the overall value of an employee’s estate, an employee that owns the policy may decide to assign ownership to a third party. Third-party ownership generally permits the death benefit to be excluded from the employee’s federal gross estate.

The life insurance policy’s premium is split, in an agreed-upon way, between the insured employee and the employer. Upon the insured’s death, the death benefits are also split between the insured’s beneficiaries and the employer. The portion of the death benefit payable to the employer serves as reimbursement for the employer’s interest in the policy.

Thus, in a split dollar plan, there’s a lot of splitting”:
  • Premiums are split between the insured and the employer.
  • Death benefits are split between the insured’s beneficiaries and the employer
  • Cash values are normally split between the two parties in the plan too

The division of premiums, death benefits, and cash values between the parties to the split dollar plan is not typically equal. Instead, it may vary significantly from one split dollar plan to another and is determined by the type of split dollar method employed and the split dollar plan agreement between the parties.

We make it simple!
Endorsement vs. Collateral Assignment Plans

When a life insurance policy is owned by the employer, then the split dollar plan is known as an endorsement split dollar plan. A life insurance policy that is owned by the insured employee (or assigned by the employee to a third party) then we are dealing with a collateral assignment split dollar plan. The needs of each party involved will determine which plan is best.

In an endorsement split dollar plan, the life insurance policy’s premium payment is made by the employer. The insured employee’s share of the premium is then paid by the employee to the employer. The employer-policyowner’s interest in the life insurance policy’s cash values is carried as an asset on its balance sheet.

Under an endorsement split dollar plan, third party assignment of ownership simply does not make sense. If the employer endorses a third party the right to name the beneficiary, a transfer-for-value may have occurred that will adversely affect the normally income tax-free nature of the death benefit.

I have known the proprietor of East Coast Financial for over 20 years and from the day I met him, to shortly after when he managed my money, I knew he and his organization is one I could trust.

– Robert Leaman | Retired | Former Owner Compressed Gas Solutions

Get Started Today!

Your information is 100% secure and encrypted.

In a collateral assignment split dollar plan, the policy is owned by the insured employee or by a third party. In return for the employer’s payment of an agreed-upon portion of the premiums, the insured employee, as policyowner, assigns the policy to the employer in a collateral assignment in order to secure the employer’s recovery of its interest in the policy.

In a collateral assignment split dollar plan, the policy is owned by the insured employee or third party. The employer advances its share of the premium to the owner—the insured or third party—who then pays the full premium to the insurer. When the insured dies or the plan terminates during the insured’s lifetime, the employer recovers its premiums in accordance with its collateral assignment. The insured (or third party) in a collateral assignment split dollar plan owns the cash values in excess of the employer’s collateral interest.

The life insurance policy application in a collateral assignment split dollar plan does not reflect the split-dollar nature of the premium or show any assignment of policy ownership. Instead, the cash value and death benefit split are accomplished entirely by the collateral assignment.

Real Customers, Real References!
OUR GROWING FAMILY!
Known Nationwide For Taking the "Nuance" Out Of Insurance!
Get Started.

Your information is 100% secure and encrypted.

Split Dollar Life Insurance Policy
Still Need Help?

We enjoy adapting our strategies to offer every client the best
solutions that are at the forefront of the industry.

Book A Call

Learning is great, but taking action to ensure your business interests and family are protected is most important.
Book a Call

News & Updates

If your question did not get answered here, our blog news & tips are updated regularly and may help answer your questions!
Jump to Blog

Just Ask!

We understand that sometimes all of the words, links, buttons and pages can be overwhelming. Feel free to drop us a line at Ask@ecfofcf.net
Just Ask