The split-dollar life insurance benefit seems easy to understand on the surface but it requires some digging into the legal and tax considerations
A split dollar arrangement is a plan in which a life insurance policy‘s premium, cash values, and death benefit are split between two parties.
As explained by Morgan, Jr., James (attorney), “an insured person may enter into an arrangement with family members or a trust for the family’s benefit, but most split-dollar plans involve a fringe benefit program in which an employer assists an employee in purchasing an insurance policy on the life of the employee for the benefit of the employee’s family.”
What are the benefits of the Split-Dollar Life Insurance?
A split dollar arrangement can be helpful in estate liquidity planning to minimize income, estate, and gift taxes.
“A split-life insurance plan isn’t actually a policy, it is a contract used to show how life insurance will be shared among beneficiaries,” said Juan Carlos “JC” Doitteau, President at Insurance Pro.
How are these plans terminated?
Split-dollar plans are terminated in two ways:
- at either the employee’s death, or
- at a future date included in the agreement
There are 2 types of split dollar plans
- Collateral assignment / loan regime
- Endorsement split dollar / economic benefit regime
Learn about this and other fringe benefits by contacting Insurance Pro experts.
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