Split-Dollar Life Insurance Plan
Split-Dollar Life Insurance Plan
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How Does A Split-Dollar Life Insurance Plan Work?

Life insurance is an incredibly important investment. Ultimately, you are ensuring that you leave behind security and stability for your beneficiaries and not a financial burden. Having a run of the mill life insurance policy might not always be enough. Getting the right type of coverage and using an appropriate life insurance strategy will guarantee that what you are leaving behind is as instrumental as possible.

Split-dollar life insurance is one strategy you can use to confirm your life insurance policy avoids additional tax burdens that will undercut how much your family will receive when the policy is paid out. However, not everyone is the right fit for such coverage. So, what is split-dollar life insurance and who will benefit most?

What is split-dollar life insurance?

Split-dollar life insurance is a strategy for life insurance plans, not an insurance plan itself. The goal of this strategy, which can be utilized with survivorship or whole life insurance policies, is to split the costs and benefits.

Essentially, a split-dollar life insurance policy will enable the relevant parties to have the costs of the premiums paid into the policy and split between more than one party. Similarly, these policies will allow provisions that name multiple beneficiaries and assign specific cash values to be paid out to each of them.

Who can split-dollar life insurance benefit?

Most commonly, split-dollar life insurance is a strategy employed when companies or corporations are involved. For example, split-dollar life insurance plans may be used to split costs and benefits between employer and employee, between owners of a company, and between shareholders and corporations.

Split-dollar life insurance may be utilized between individuals as well. Premiums and benefits may be shared between family members or under the guidance of a third-party Irrevocable Life Insurance Trust (ILIT). It’s advantageous for large estates to separate their life insurance from the estate itself. An ILIT alleviates any burdensome estate taxes once the two are divided. On their terms, policyholders may still determine who the beneficiaries are and assign a trustee to oversee the ILIT.

Setting up split-dollar life insurance

A written agreement may be created that will determine the exact terms of how premium costs will be split, as well as where the cash value and death benefits will be paid. For example, an agreement between an employer and employee will include terms of what the employee needs to accomplish to continue earning the benefit, what would need to happen for the clause to be terminated, if the employee underperforms, is let go by the company, or willingly leaves.

A split-dollar life insurance plan allows you to utilize a cost-sharing plan, retain the insurance rate that was in effect when the plan was first purchased and helps to alleviate any taxes for more affluent estates.

Schechner Lifson Corporation can determine if split-dollar life insurance is for you. Contact us today to see how we can make sense of the world of insurance, providing you with the best coverage possible.

Schechner Lifson Corporation