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

Landmark legislation passed by Congress providing the first regulation of the securities markets. The law, enforced by the securities and exchange commission (sec), requires registration of ...

Tax assessed by the states as a payroll tax on employers to pay for unemployment compensation ...

Method of classifying risks to establish equitable rates. In many property and liability insurance lines, the location of an insured has a significant impact on the loss experience. For ...

Injury that continues after a wound from physical or psychic entry. (The latter is a wound that makes a lasting impression on the mind, especially upon the subconscious mind; for example, a ...

Coverage for property damage by a covered peril to insured cotton during the time period from its weighing in at the gin until its delivery to the buyer. Written either on a specified peril ...

Ownership of property by two or more persons who do not have rights of survivor ship. The share of a deceased tenant passes to that person's heirs and not to the other tenants. Because ...

Term that describes commercial insurance with no administrative services attached, or alternatively, administrative services from an insurer without insurance coverage. Years ago, insureds ...

Termination of a plan. Under federal tax law, a plan can only be terminated for reasons of business necessity. Otherwise, prior employer tax deductible contributions under the plan are ...

Single insurance policy for only one kind of property at only one location of an insured. For example, property insurance on a rare piano in the insured's home would cover only that piano, ...

Popular Insurance Questions