• Split-Dollar Disability Income Plan: The employee pays his or her portion of the premium with after-tax dollars. The employer's portion of the premium is tax-deductible as a business expense. At the time of claim, benefits attributable to the employee's portion of the premium are income tax free and not subject to FICA tax withholding. Benefits attributable to the employer's portion of the premium are taxable income to the employee.

The employee could pay the additional cost for riders, such as Cost of Living, with after-tax dollars. Claim payments would then increase annually to keep pace with inflation. The increased benefit would be received income tax free.

No matter which funding arrangement is adopted, however, don't wait for clients' attorneys to do their jobs before you do the most important part of yours! Sell the insurance to underwrite the plan first. It's better to have the funding without the plan than to have the obligation of a plan without the funding.