Problem: Key employees or shareholders may need or want additional life insurance for personal or business purposes, but cannot afford to pay all the premiums.
Solution: Using the split-dollar concept, a business can help pay insurance premiums for selected employees, and eventually recover its costs. A number of different variations of this versatile concept have been devised, but under the typical split-dollar plan, the premium payments and proceeds of a life insurance policy are shared by the employer and an employee.
In split-dollar life insurance, the employer pays most of the premium, and receives an amount equal to the total amount of premiums he or she has paid. The employer has ownership rights of any life insurance cash accumulations during the insured's lifetime.
The employee pays the remainder of the premium and designates the beneficiary, who receives the remainder of the life insurance death proceeds. The employee is taxed on the so-called "economic benefit" received from the plan, or the economic value of the death benefit. In most cases, the employer may not deduct the contributions to a split-dollar plan.
Split-dollar is adaptable to a wide-variety of planning situations, including:
Reference: Split-Dollar Insurance Adviser Guide (Form 1437), Split-Dollar Client Guide (Form 2305), ON-Trac Disability Income for Businessowners & Professionals Module (Form 1178.21), Split-Dollar Client PowerPoint Presentation (ON-Net)
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