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Split Dollar Life Insurance

Split Dollar life insurance refers to arrangements between two or more individuals where the premiums and death benefits are split or shared between them. The split dollar  life insurance premiums are not tax deductible, but the death benefit is income tax free.

Split Dollar life insurance arrangements are one of the most effective methods of buy and sell agreements and business continuation. These agreements essentially ensure the orderly transfer of s deceased business interest to existing owners at a value predetermined at a time prior to the death of the owner.

Examples of Split Dollar Techniques include

• Sole Ownership - A third party administrator (TPA) owns and is named the beneficiary of the life insurance policy. In this arrangement the company has no rights to the policy. 
• Endorsement - The employer owns the life insurance policy. The employee receives a portion of the death benefit equal to the total policy death benefit less the greater of the policy value or the premiums paid by the employer.
• Collateral Assignment - The employer pays the life insurance premiums (non-deductible). The employee owns the policy and names a beneficiary. The death benefit and cash values from the policy are assigned to the employer as collateral for the employees interest in the policy.
• Split Ownership - The employee owns the life insurance policy. The employees death benefit represents the amount in excess of premiums paid by the employer. The employers death benefit interest is the premiums it has paid. 

Split Dollar Life Insurance Key Points

• Split dollar life insurance provides for business continuation.
• Provides the ability to purchase a business (buy and sell) for a predetermined set price.
• Provides financial security and benefits to the owners beneficiaries.
• Life Insurance premiums are not tax deductible.
• The death benefit proceeds of the split dollar life insurance policy are received by the beneficiaries income tax free.