Leveraged Split Dollar Life Insurance
Definition of "Leveraged split dollar life insurance"
Modified collateral split dollar life insurance plan under which the employee purchases and owns a life insurance policy on the employee's own life. The employer makes the unscheduled premium payments on the policy. The employee makes a collateral assignment of the policy to the employer, which acts as security for the unscheduled premiums paid by the employer. Upon this assignment, the life insurance company that issued the policy lends the employer the amount of the unscheduled premium payment; interest paid the insurance company by the employer for the loan is tax-deductible to the employer. Part of this interest paid by the employer is credited to the cash value of the policy by the insurance company. During this period of time, the employer is also making the scheduled premium payments due on this policy (at least seven annual premium payments must be made if the policy is to retain its tax-advantaged status). The scheduled premium payments are taxed as ordinary current income to the employee. When the employee retires, the split dollar plan is terminated and all of the unscheduled premium payments made by the employer are repaid to the employer, either through loans on the cash value of the policy or through cash withdrawals from the policy. With the repaid premiums amount, the employer then repays the insurance company for the previous loans made to pay the unscheduled premium payments. The repaid loan amount is credited to the cash value of the policy by the insurance company. From the reconstituted cash values, the employee then borrows a series of annual income payments based on the employee's life expectancy. When the employee dies, the death benefit from the policy repays the amount owed the insurance company for the loans from the cash value made to fund the retirement income of the employee. The excess amount (if any) of the death benefit minus the policy loan repayment is paid to the beneficiary (s) of the employee.
Popular Insurance Terms
Effort of a poor risk to seek insurance coverage. The onset of a health problem such as heart disease, for example, may prompt a person to apply for life insurance before seeking medical ...
Trust under which the beneficiary (cannot be a charitable beneficiary) receives a fixed percentage (not less than 5% of the trust's annual value) of the net fair market value of the trust ...
Legal decision wherein proceeds of a life insurance policy on which the decedent's corporation paid the premiums within three years of his or her death are not includable in the decedent's ...
Single policy under which one individual is insured. ...
Sum paid by an insurance company or other firms or individuals to designated types of business in a particular state or municipality. ...
Employee benefit plan that provides such benefits as long-term care insurance, dependent care spending amounts, sabbaticals, and parental leave. ...
Method of valuing a reserve under which no reserve is established for a life insurance policy at the end of the first policy year, but reserves are established at the end of the second ...
Immense collection of networks that are interconnected on a global basis providing services to the general public. These services include the transferring of files among computers, ...
Ceiling on expense reimbursement allowance, as stated in New York insurance law, that an insurance company licensed in New York State can give its agents. This is one reason why a company ...
Have a question or comment?
We're here to help.