Split Dollar Life Insurance

Nearly everyone needs life insurance to take care of their families financial security if they die unexpectedly. Life insurance death benefits can contribute funds to pay off a mortgage, create a college fund, pay off loans or complete a retirement plan.

But, just because your family needs life insurance protection does not mean they have the money to procure it. With all the competing needs for your money, it can be challenging tofind the funds needed to pay for all the life insurance protection your family needs.

If you own a business or if you are a key employee, there is a prized selective benefit your company can take advantage of to pay your life insurance premiums. This selective benefit is known as a split dollar arrangement. It's a benefit that can legally discriminate for the benefit of owners and preferred key employees.

A split dollar arrangement has several rewarding benefits:

? You may be able to secure the full amount of coverage that your family requires without paying the premiums from your personal capital.
? Your price is the income tax on the "economic benefit value" of the death benefits that will be paid to your beneficiaries (economic benefit value is determined by the IRS and is similar to the cost of term insurance).
? The company is able to recoup the greater of the premiums it pays or the policy's cash value from the policy death benefit.
? The company has the uncertainty of loss if the package ends prior to death and the policy cash values aren't enough to refund the premiums.
? A split dollar arrangement is constructed through a legal agreement.

There are two types of arrangements:

Endorsement Agreement
? Normally used when the valued employee is not an owner
? The business owns the policy
? Employee's beneficiaries receives the portion of death benefits not paid to the company

Collateral Assignment Agreement (non-equity)
? The prized employee owns the policy
? Contractual rights are named to the business aside from the right for a portion of the death benefits to be given to the heirs
? Normally used when the employee is also a shareholder

Although split dollar life insurance can be a great benefit it is not for everybody. Please confer with your group of advisors in advance of implementing.



To learn more about split dollar you should consult with your tax advisor. The information discussed in this article does not consitute tax or legal advice.