The Split-dollar Life Insurance Plan

A recruiting and retention tool using life insurance for your key employee

Reward your employees with a split-dollar plan

Under a split-dollar plan, you and your key employee share in the purchase of a life insurance policy. You can use it as both a recruiting and retention tool for your valued employees.

How the split-dollar plan benefits your business

• You can select who receives benefits, when they receive them and how much they receive
• It lacks limits or rules associated with funding and vesting
• It offers low start-up and administrative expenses
• You can potentially recoup your business’ investment when a valued employee quits, retires or dies

How the split-dollar plan benefits your employees

• Your business makes the premium payments for personal life insurance protection
• They have flexibility in the plan design to meet their individual needs
• They have the ability to receive tax-free income via partial withdrawals and loans
• There is an opportunity for tax-deferred growth of cash values

How it works

Your business makes premium payments for personal life insurance protection. The employee pays the taxes as income tax, which can be covered by a bonus from your business.

If the employee dies prematurely, the business will get its premium payments back, and the employee’s beneficiaries will get the remainder of the policy – so it becomes an income tax-free death benefit for them. 

Since your business is unique, the benefits, risks and costs of the split-dollar strategy and life insurance policies used should be carefully evaluated. As there can be complex tax and legal issues, please be sure to consult with your tax and/or legal advisor for answers to any of your questions. Nationwide^® and its representatives do not provide legal or tax advice.

What you should keep in mind

• This strategy does not guarantee returns or insulate you from losses, including loss of principal
• As your personal situations change (e.g., marriage, birth of a child or job promotion), so will your life insurance needs; care should be taken to ensure that this strategy and product are suitable for your long-term life insurance needs
• You should weigh your objectives, time horizon and risk tolerance as well as any associated costs before investing
• Market volatility can lead to the possibility of needing additional premium in your policy to ensure it does not lapse
• Variable life products allow the policyholder to choose an appropriate amount of life insurance that has an additional cost associated with it
• Loans and partial withdrawals will reduce the death benefits payable to your beneficiaries, and withdrawals above the available free amount will incur surrender charges
• The death benefit and any guarantees are subject to the claims-paying ability of the issuing insurance company

Variable products are sold by prospectus. Carefully consider the investment objectives, risks, charges and expenses that may apply before investing. The prospectus contains this and other important information about the investment company. To request a copy, contact your investment professional or write to Nationwide Life Insurance Company, P.O. Box 182150, Columbus, OH 43218-2150. Please read the product and underlying fund prospectuses carefully before investing.

We make several assumptions when we talk about taking loans and partial withdrawals from a policy, including that:

• The contract actually qualifies as life insurance according to Internal Revenue Code (IRC) Section 7702
• The contract is not a modified endowment contract, or MEC, as defined in IRC

Section 7702A

• If it meets all of the requirements of Section 7702A, most of the distributions from your policy will be taxed on a first-in/first-out basis
• But, if it is a MEC, then any distributions you take from your policy will generally be taxable — and subject to a 10% penalty tax if you’re 59½ or younger
• If you choose to take loans or partial withdrawals, the death benefit payable to your beneficiaries will be reduced
• Surrender charges may apply to your partial withdrawals

• Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution • Not insured by any federal government agency • May lose value

Life insurance products are issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Life Insurance Company, Columbus, Ohio.