Split-dollar Life Insurance
What Does Split-dollar Life Insurance Mean?
Split-dollar life insurance is a type of policy jointly purchased by a company and its employees. Typically, the employer is designated as the “policy owner,” while both the employer and the employee share the premium costs and the policy benefits.
Most split-dollar arrangements are built on a permanent life insurance policy, because the cash value that accumulates over time is what allows the employer to recover its share of the premiums down the line.
Insuranceopedia Explains Split-dollar Life Insurance
Split-dollar life insurance policies are popular for several reasons. First, they offer a cost-effective way for employers to provide benefits to their employees. Second, the death benefits for both parties are typically income tax-free. Third, the premium payments are shared, alleviating the financial burden for both sides. Because the premiums are split, the cost to the employee is usually lower than buying the same coverage alone, though it’s worth knowing what life insurance costs on the open market before agreeing to a payroll deduction. Lastly, it is often more convenient for employees to obtain a life insurance policy through their employer rather than conducting extensive market research to find a suitable plan on their own.
Employees should still compare the coverage against quotes from top-rated life insurance companies, since split-dollar policies are often tied to employment and may end or change when someone leaves the job.
