Companies usually include life insurance in their employment benefits packages, but the policies can vary. A split dollar life insurance plan is usually between an employer and employee. The policy is split evenly between the two parties.
The policy can be divided in the following ways:
- If the policy has cash value
- Cost or premiums of the life policy
- Face Value
- Dividends and other Income from the policy
The split dollar life policy can benefit the employee by offering the life insurance cheaper to help protect his/her loved ones if something were to happen. The employer benefits from the insurance policy being used as an incentive. The company can also deduct the premiums associated with the policy.
Types of Split Dollar Life Insurance
There are two types of split dollar life insurance, endorsement and collateral assignments.
The endorsement type of split dollar life insurance is when the employer owns the policy and pays the full premiums of the policy. The employee is free to name whomever to receive the death benefit. The employee is responsible for any tax liability associated with the policy, even death benefit, being that the employer paid the insurance premiums.
The collateral assignment type of split dollar life is when the employee owns the policy, but the employer pays the life premiums. With this type, the employer takes an assignment of the benefit for security.
In conclusion, everyone should have some life insurance. Split Dollar Life Insurance makes obtaining a policy a bit more affordable. A person should always have enough life insurance to cover their debts, as well as the cost of a funeral. No one gets excited about life insurance, except the salesman, but it really is necessary. Your money could be going toward other material things, but I truly believe a policy is necessary for everyone.