Split Dollar Plan
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Reward Your Employees With Life Insurance Using a Split Dollar Plan

Under a split dollar plan, you have the opportunity to reward and retain your key employees. 

There are two types of split dollar plans – collateral assignment/loan regime and endorsement split dollar/economic benefit regime. Each type has unique features to meet various business objectives.

Collateral assignment/loan regime

When the plan is designed this way, the employee owns the policy and the employer lends the premium required to pay for it. The employee is taxed on the interest-free element of the loan. Upon separation of service, the loan may be paid back by the employee or forgiven by the employer. If it is forgiven, there will be tax implications for the employee and the employer will receive a tax deduction.

Endorsement split dollar/economic benefit regime

The employer owns the policy and allows the employee to name the policy beneficiary. The employee’s economic benefit is in the value of the life insurance coverage. At the end of the arrangement, the policy may be transferred to, or purchased by, the employee. 

Potential employer benefits

  • You can select who receives benefits, when they receive them and how much they receive
  • Lack of limits or rules associated with traditional qualified plans
  • Low start-up and administrative expenses
  • You can potentially recoup your business’ investment when a valued employee quits, retires or dies

Potential employee benefits

  • 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
  • Opportunity for tax-deferred growth of cash values

Read a split dollar case study.

Products used to fund split dollar plans

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