What is Split-Dollar Life Insurance ? Split-dollar life insurance (SDLI) is a concept for funding. SDLI is an arrangement that helps individuals aquire life insurance at a lower cost than would other wise be able or possible.

A split-dollar life insurance arrangement involves two or more parties who share or “split” the death benefit, premiums, and cash value. Split-dollar arrangements have been used as a way to compensate key executives for over 40 years.

Typically, the employer and the employee enter into an arrangement in which the employee agrees to pay the economic benefit cost on his/her portion of the policy death benefit, and the employer agrees to pay the balance. The employee may create an Irrevocable Life Insurance Trust (ILIT) to own his or her share of the policy, and if the trust is structured properly, it will not be subject to estate tax at the death of the insured.1 This arrangement usually remains in effect until the employee retires or the arrangement is terminated. Once the split-dollar arrangement has dissolved, the employer will usually recover its cost, and the employee (or the employee’s ILIT) will be the full owner of the policy. Split-dollar arrangements can be simple to implement and beneficial to both the employer and employee. The employer benefits because a split-dollar arrangement permits the employer to provide valuable benefits to a key employee with eventual cost recovery.

In addition, the employer can select the employees whom it wishes to benefit. The employee benefits because the split-dollar life insurance arrangement provides current, lowcost death benefit protection. Also, with an equity arrangement the employee may have access to significant policy values for supplemental income in retirement. In addition, with a collateral assignment arrangement the employee can keep the policy if he or she leaves the company.A split-dollar arrangement is a simple plan to implement and benefits both the employee and the employer. A split-dollar plan may stand alone or may be used in conjunction with other business planning concepts, such as a Supplemental Executive Retirement Plan (SERP) or a buy/sell plan.

More ways to use the concept? The concept is reached by sharing or splitting the monthly or annual life premium with another individual , business , family memebr or entity. This pre-determined arrangement should be agreed to in writting and, generally calls for the splitting of life insurance premiums in exchange for the sharing of the life insurance death benefits and, in most cases the cash value too.

Split-dollar life insurance insurance is a very flexible arrangement that in many situations, not just transfers of assets generation to generation but For instance, split-dollar life insurance can be effective in other areas like:

• KEY EMPLOYEE COMP: As a select benefit to favored key employees or partners , within the business helping these individuals get coverage to protect their families for a normal than lower immediate expense or outlay of cash to pay their life insurance premiumsneach month.
• Senior Employee Benefits : As a benefit for employees or owners who are rated (or perhaps significantly older) and might not otherwise be able to afford life insurance coverage unless at least a portion of the cost is paid by others with insurable intrest or the business.
• Deferred COMP: As a funding tool for salary continuation plans.
• BUY SELL : As a funding vehicle for buy/sell partnership agreements, especially when parties are of differing age brackets.

As you can see there are many ways to use Split Dollar Life Insurence or split-dollar concept to help fund or provide cash in future needs.

Other options we have seen Split Dollar Life Insurance arranged or used:

LIFE BENEFIT: It can be used by an older employee or owner to obtain coverage to protect his or her family. Under this plan, the employee applies for and owns the policy and names his or her personal beneficiary. The business pays all or a portion of the premium. In return, a portion of the proceeds equal to that paid by the business in premiums is assigned to the business for example INSURANCE AGENTS can sign over his or her book value for payback of life premiums, which will allow for tax advantages to his or her estate.

Also at the employee's death, the business is reimbursed in full, and the remainder of the proceeds is paid to the employee's beneficiary. If the employee leaves the company or retires, he or she could pay the business for premiums contributed (often out of the cash value itself) and take full possession of the policy.

Example: An employer and employee buy a $100,000 policy on the employee's life. As part of an agreement, they split the premiums. At the time of the employee's death, the business has contributed $18,000 in premiums. The business is reimbursed that amount from the proceeds, while the employee's beneficiary receives $82,000.

Tax Considerations of a Split Dollar Life Insurance
It is important to be aware of the potential tax ramifications of a split-dollar life insurance plan. In general, premiums are not deductible by either the employee or the employer. Any money "bonused" to the employee to help pay premiums will generally be treated as taxable income to the employee and as a deductible business expense by the business.

Proceeds are generally received without income tax by either the employer or the employee's beneficiaries (although the "alternative minimum tax" may apply if proceeds are payable to a corporation).

The "Economic Benefit" needs to be understood. Under federal tax law, any portion of the economic benefit of the coverage that is not paid by the employee is considered to be a form of compensation. This is calculated using the P.S. 58 tables or the insurance company's one-year term rate, whichever is lower. To avoid this, the amount the employee pays is often equal to the "economic benefit" of the protection received by the employee in that year. more

The Bottom Line
Split-dollar life insurance quotes can be a very valuable business management and planning tool that bridges many needs and requirements including the the generation gap which would enabl younger or lower-paid employees and family members to purchase coverage to achieve specific goals. It can benefit your company and favored employees including owner/employees and designated heirs. However, especially when factoring in the tax aspects, it is important to work with people who are knowledgeable.

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