Help your small business clients keep their top talent satisfied by offering benefits that make them feel valued. An endorsement split dollar arrangement is one option to fill this need.

How this plan works

Under an endorsement split dollar arrangement, the business purchases an insurance policy on the life of a key employee. The employee then names the beneficiary while the company retains ownership of the policy and pays the premiums. The employee is taxed on the fair market value of the life insurance policy.

Diagram of how an endorsement split dollar arrangement works, during the key employee’s working years; description above.

If the key employee passes away prematurely, then the insurance company pays out the policy’s death benefit. The employer reclaims the greater of the amount of premiums paid to the policy or its cash value. The remaining balance of the death benefit is then paid to the beneficiaries named by the key employee.

Diagram of how an endorsement split dollar arrangement works, should the key employee pass away prematurely; description above.

Otherwise, upon the key employee’s separation from service or the end of the agreement, one of two things will happen:

  1. The employee obtains the policy through a bonus on the sale of the policy at fair market value.
  2. The employer retains the policy and either (a) maintains the policy as is, (b) maintains the policy but changes the insured, or (c) surrenders the policy.

Diagram of how an endorsement split dollar arrangement works, upon the key employee’s separation from service or the end of the agreement; description above.

Potential benefits of the plan

  • It's both a recruiting and retention tool for valued employees
  • It has less administration and fewer filing requirements than qualified retirement plans subject to ERISA
  • The business owner can choose who receives benefits, when, and how much
  • It lacks the contribution limitations and regulatory rules associated with traditional qualified retirement plans
  • The company has the ability to recoup some of its investment when a valued employee separates from service, retires or dies
  • It offers flexibility in plan design to meet specific needs

Drawbacks of the plan

  • A formal written contract is required to implement the arrangement
  • There's no guarantee that the employee will stay with the company once the contract term has ended
  • The plan may need to comply with Internal Revenue Code Section 409A


Share this brochure with your business client to illustrate the two types of split dollar arrangements using life insurance and to show how these plans can help recruit and retain valued employees.


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For more information, contact the Solutions Center at 1-800-321-6064

As situations change, so will the business's life insurance needs. Care should be taken to ensure these strategies and products are suitable for the business's and the client's long-term goals. Weigh the business's objectives, time horizon and risk tolerance as well as any associated costs before investing. Also, be aware that market volatility can lead to the possibility of the need for additional premium in the policy. Variable life insurance has fees and charges associated with it, which include costs of insurance, underlying fund expenses and administration fees. Investing involves risk, including possible loss of principal. Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.

Variable life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as gender, health and age, underlying fund charges and expenses, and additional charges for riders that customize a policy to fit their individual needs. Variable products are sold by prospectus. You can obtain the product prospectus and underlying fund prospectuses by writing to Nationwide Life Insurance Company, P.O. Box 182021, Columbus, OH 43218-2021. Before you invest, you should read the prospectus carefully and consider investment objectives, risks, charges and expenses. The product prospectus and underlying fund prospectus contain this and other important information.

Loans and withdrawals will reduce the death benefit. Most distributions will be taxed on a first-in/first-out basis, as long as the contract is not a modified endowment contract (MEC) according to Section 7702A of the Internal Revenue Code. Loans from a MEC are generally taxable and subject to a 10% tax penalty if taken before age 59 1/2. If the policy lapses with a loan outstanding, it will be treated as a distribution and some or all of the amount may be taxable.

Guarantees and protections are subject to Nationwide's claims-paying ability. They do not apply to the investment performance or safety of the underlying investment options.

Investment products are not FDIC-insured, may lose value and have no bank guarantee.