Split-Dollar Life Insurance

A split-dollar life insurance plan is an agreement between two or more parties, typically an employer and an employee, to share the costs, ownership, benefits, and premiums of a permanent life insurance policy, such as whole life insurance. The plan outlines how cash value, death benefits, and premium payments will be divided, providing supplemental benefits for executives and helping employers retain key employees. There are two primary types of split-dollar plans: an economic benefit arrangement where the employer owns the policy and shares death benefits with the employee, and a loan arrangement where the employee owns the policy and the employer loans premium payments, secured by the policy's cash value as collateral. These plans are often used in business settings for executive compensation, allowing employers to recover premium costs and employees to receive valuable life insurance benefits with minimal upfront expense. Tax implications vary depending on the structure, and split-dollar plans are not considered qualified retirement plans.