Split Dollar Life Insurance
Definition of "Split dollar life insurance"
Policy in which premiums, ownership rights, and death proceeds are split between an employer and an employee, or between a parent and a child. The employer pays the part of each year's premium that at least equals the increase in the cash value. The employee may pay the remainder of the premium, or the employer may pay the entire premium. When the increase in cash value equals or exceeds the yearly premium, the employer pays the entire premium. If the employee dies while in the service of the employer, a beneficiary chosen by the employee receives the difference between the face value and the amount paid to the employer (the cash value or the total of all premiums paid by the employer- whichever is greater). Thus, during employment, the employee's share of the death benefit decreases. If the employee leaves the employer, the latter has the option of surrendering the policy in exchange for return of all premiums, or selling the policy to the employee for the amount of its cash value. There are two types of split dollar life insurance policies: Endorsement-the employer owns all policy privileges; the employee's only rights are to choose beneficiaries and to select the manner in which the death benefit is paid. Collateral-the employee owns the policy. The employer's contributions toward the premiums are viewed as a series of interest-free loans, which equal the yearly increase in the cash value of the policy. The employee assigns the policy to the employer as collateral for these loans. When the employee dies, the loans are paid from the face value of the policy. Any remaining proceeds are paid to the beneficiary.
Popular Insurance Terms
Unit of the life office management association (LOMA), which prepares and administers educational materials for the Fellow Life Management Institute (FLMI) Program. Upon successful ...
Type of guaranteed insurance contract in which the term is fixed, the rate is fixed, and the contract owner does not participate in the insurance company's earnings. ...
Inland marine policy that covers truck drivers for loss or damage to merchandise they haul. The Interstate Commerce Commission requires this coverage for trucks engaged in interstate ...
Coverage for exposures that exhibit a possibility of financial loss. ...
In insurance, agreement between an insurer and an insured under which the insurer has a legally enforceable obligation to make all benefit payments for which it has received premiums. ...
Insurance policy sold by nonadmitted insurer. ...
process of discovering sources of loss concerning the liability risk faced by individuals and business firms. The first step in risk management is to identify the causes of a loss by ...
Coverage for motorized vehicles, each of which requires separate policies for property damage and liability exposures. Motorized vehicles are not covered under a homeowners insurance policy ...
Location that is different from an insured's home or place of business. Under the standard homeowners insurance policy, the property of the insured is covered off premises; for example, if ...
Have a question or comment?
We're here to help.