Split Dollar Plans

Executive life insurance plans provide HCEs the coverage they need beyond the group term plan limits.

Coverage executives can keep throughout their careers and into retirement.

Supplemental life insurance benefits help companies address group life insurance restrictions and portability limitations. Although the endorsement split dollar life insurance technique is perhaps the most complicated option, it should not necessarily be ruled out in every situation in favor of Section 162 Bonus, Death Benefit, and Group Term Insurance programs.

The "split" in split dollar means the company and executive share the cost as well as the benefits of a cash value life insurance policy. The company pays insurance premiums into a company-owned policy. The death benefit is provided to the employee’s beneficiary through an agreement that endorses a portion of the benefit to the beneficiaries designated by the executive. This agreement can be maintained into post-retirement for the life of the insured executive.

Since executive life insurance plans are nonqualified benefits, premiums aren't a tax deductible expense to the employer like they are for qualified group life plans. The employee pays tax based on imputed income table rates, and the death benefit is received tax free by the beneficiaries. That arrangement makes split dollar executive life insurance cost-efficient for the company and for the executives.

Employer benefits

• Company recovers premiums
• Company selects which executives participate
• Company can terminate the plan at any time

Employee benefits

• Employee’s beneficiaries receive benefit tax free
• The benefit may be removed from the estate, and the related taxes
• Cost of imputed income is less than taxes on the 162 Bonus Plan

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