Split Dollar Life Insurance

Definition of "Split dollar life insurance"

Simon Westfall Kwong real estate agent

Written by

Simon Westfall Kwongelite badge icon

Keller Williams Realty

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Organization that develops and publishes educational material and administers national examinations in supervisory management, general insurance, claims, management, risk management, ...

Type of policy with premiums that are fully paid up within a stated period. For example, a 20-payment life insurance policy has 20 annual premium payments, with no further premiums to be ...

Range of administrative and risk management services that can be purchased by an insured. Increasingly, insurance can be purchased unbundled so that policy-holders may pay for straight ...

Individual permitted to enter property with the permission of the owner or the person who controls the property. There is no mutual profit motive; the licensee comes onto the property for ...

Element usually found in industrial life insurance policies under which the insurance company upon the death of the insured under certain conditions is allowed to choose the beneficiary if ...

(also known as merit rating) method of setting property insurance rates by modifying or adjusting the manual rate for various classifications of risks. Modifications may be based on past or ...

Kindling intentionally set in a fireplace, stove, furnace, or other containment that has not spread beyond it. Property insurance does not protect against damage from a friendly fire. For ...

Fee paid to an insurance salesperson as a percentage of the premium generated by a sold insurance policy. ...

Average earned monthly income of the insured wage earner after regular earned income has been interrupted or terminated because of illness, sickness, or accident. This income amount is ...

Popular Insurance Questions