This chapter covers split dollar life insurance arrangements, in the context of employee benefits, so private split dollar arrangements are not discussed (other than a brief mention). Advantages and disadvantages are mentioned, followed by a section on design features. | An arrangement to share costs and benefits of a life insurance policy typically between employer and employee, but can be used by others can split premiums, death benefits and/or cash value, dividends, or ownership What is it? Copyright 2009, The National Underwriter Company When employer wants: To provide executive with low cost and low outlay life insurance benefit An alternative to insurance-financed nonqualified deferred compensation plan for providing pre-retirement death benefit When is it indicated? Copyright 2009, The National Underwriter Company When employer wants: To provide exclusive executive fringe benefit To establish market for stock facilitate cross-purchase buy-sell enable non-stockholding employee to effect a one-way stock purchase at death of existing shareholder What is it indicated? Copyright 2009, The National Underwriter Company 1. Executive can use employer funds to receive current benefit with minimal tax cost 2. Employer’s outlay fully secured 3. Can customize plan to meet specific objectives Advantages Copyright 2009, The National Underwriter Company No tax deduction for employer’s share of premium payments Employee pays income tax each year on current cost of life insurance protection under plan 10 - 20 years before policy cash values are sufficient to maximize plan benefits Must terminate plan when employee near age 65 Unfavorable tax treatment under new regulations Disadvantages Copyright 2009, The National Underwriter Company 4 major categories Classic or standard split dollar plan Level premium plan Employer pay all Offset plan Design Features: Premium Cost Split Copyright 2009, The National Underwriter Company Purpose – reimburse employer for share of premium outlay when employee dies or terminates plan Design Features: Cash Value and Death Proceeds Split Copyright 2009, The National Underwriter Company Commonly used cash value / death proceeds split arrangements: employer share is GREATER of: (1) . | An arrangement to share costs and benefits of a life insurance policy typically between employer and employee, but can be used by others can split premiums, death benefits and/or cash value, dividends, or ownership What is it? Copyright 2009, The National Underwriter Company When employer wants: To provide executive with low cost and low outlay life insurance benefit An alternative to insurance-financed nonqualified deferred compensation plan for providing pre-retirement death benefit When is it indicated? Copyright 2009, The National Underwriter Company When employer wants: To provide exclusive executive fringe benefit To establish market for stock facilitate cross-purchase buy-sell enable non-stockholding employee to effect a one-way stock purchase at death of existing shareholder What is it indicated? Copyright 2009, The National Underwriter Company 1. Executive can use employer funds to receive current benefit with minimal tax cost 2. Employer’s outlay fully secured 3.
