Split Dollars Planning
Overview
A Split Dollar plan allows a business to assist an employee with the purchase of needed life insurance protection by paying all or a portion of the premiums.
The premium payments and policy benefits are split between the parties in a manner specified in a split-dollar agreement.
Split dollar is a method of buying life insurance, not a reason for buying it. A need for life insurance should always exist before a split-dollar arrangement is considered.
How this work?
Business pay premium to the life insurance policy, business is the owner, the employee is insured.
the beneficiary can be business and employee's families, business for total of its premium, and employee's beneficiary for balance.
Advantages to Employee
• Split dollar can provide needed personal life insurance protection at a reduced current out-of-pocket cost.
• Split dollar can be combined with a cross-purchase buy-sell agreement to even out the current premium cost in the case of a wide age variance.
• A Split Dollar plan leverages corporate dollars to purchase life insurance, making it a win-win situation for both the employer and the employee
Disadvantage
• Split-dollar life insurance arrangements entered into on and after September 18, 2003 are subject to final federal tax regulations that are generally less favorable than the prior tax treatment, particularly in the case of equity split-dollar arrangements (defined later).
• Employers and employees who want a more predictable tax environment may want to consider executive bonus life insurance arrangements as a possible alternative to split dollar.