Leveraged Split Dollar Life Insurance
Definition of "Leveraged split dollar life insurance"
Modified collateral split dollar life insurance plan under which the employee purchases and owns a life insurance policy on the employee's own life. The employer makes the unscheduled premium payments on the policy. The employee makes a collateral assignment of the policy to the employer, which acts as security for the unscheduled premiums paid by the employer. Upon this assignment, the life insurance company that issued the policy lends the employer the amount of the unscheduled premium payment; interest paid the insurance company by the employer for the loan is tax-deductible to the employer. Part of this interest paid by the employer is credited to the cash value of the policy by the insurance company. During this period of time, the employer is also making the scheduled premium payments due on this policy (at least seven annual premium payments must be made if the policy is to retain its tax-advantaged status). The scheduled premium payments are taxed as ordinary current income to the employee. When the employee retires, the split dollar plan is terminated and all of the unscheduled premium payments made by the employer are repaid to the employer, either through loans on the cash value of the policy or through cash withdrawals from the policy. With the repaid premiums amount, the employer then repays the insurance company for the previous loans made to pay the unscheduled premium payments. The repaid loan amount is credited to the cash value of the policy by the insurance company. From the reconstituted cash values, the employee then borrows a series of annual income payments based on the employee's life expectancy. When the employee dies, the death benefit from the policy repays the amount owed the insurance company for the loans from the cash value made to fund the retirement income of the employee. The excess amount (if any) of the death benefit minus the policy loan repayment is paid to the beneficiary (s) of the employee.
Popular Insurance Terms
Partial payment of medical service expenses required in group health insurance, in addition to the membership fee. For example, for each visit of a physician a member may be required to pay ...
Standard for insurance regulation in New York State and a model for insurance regulation elsewhere. For example, the standard fire policy was first adopted in New York State. Similarly, ...
Intense combustion resulting in a flame or glow. In order for the fire peril to be covered under property insurance, the fire must be a hostile fire, not a friendly fire. ...
Minimum standard of financial health for an insurance company, where assets exceed liabilities. State laws require insurance regulators to step in when solvency of an insurer is threatened ...
Purchasing bond investments that mature at different time intervals. ...
Accounting procedures that defer the full funding of a life insurance net level premium reserve to accommodate the policy acquisition cost in the early years of a policy. First-year policy ...
Regulation set forth by the national association of insurance commissioners (naic) to govern life insurance sales illustrations. Includes the following major provisions: POLICY OWNER must ...
System of charges to an insured that fluctuates according to the loss experience of that insured. This is a form of experience rating. ...
Contractual agreement between two parties in which they agree to exchange a stream of interest payments on either a fixed rate for a floating rate or a floating rate for a fixed rate. The ...
Have a question or comment?
We're here to help.