Split Dollar Life Insurance
Definition of "Split dollar life insurance"
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.
Popular Insurance Terms
Provision in an all risks inland marine policy that denies coverage for exposure to dampness and extremes of temperature. Some property, like living plants, might be particularly vulnerable ...
Duration of a policy. Property and casualty coverages are usually written for one year, although a personal automobile policy can be for six months. Life insurance can be written on a term ...
Payments made to the insured by the insurance company before the settlement date. For example, a claim is scheduled to be settled on June 1, 2000, but the insurance company pays the ...
Provision of liability policies and the liability sections of package insurance policies, such as the personal automobile policy (pap), that pay medical expenses without regard to fault. ...
Husband's interest in his wife's property upon her death. A husband has an insurable interest in that property and can purchase a property and casualty insurance policy to cover the ...
Smallest acceptable premium for which an insurance company will write a policy. This minimum charge is necessary to cover fixed expenses in placing the policy on the books. ...
Local life insurance office that sells and services ordinary life insurance as well as other forms of life insurance except debt insurance. ...
Ratio of the insurance company's investment in common stocks dividend to its adjusted surplus account. This ratio shows how vulnerable the company's surplus is to the stock market ...
Inverse of the actuarial present value of a life annuity, taking the employee's life expectancy into account, to commence income payments at the normal retirement age of the employee. It is ...
Have a question or comment?
We're here to help.