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
Risk that premiums and reinsurance, as well as other receivable instruments, will not be collected. ...
Those states requiring insurers to obtain prior approval rating of rates and policy forms before they use them. Although most states once fell into this category, many followed the lead of ...
Form that covers exposures associated with efforts to operate a business that is damaged by a peril such as fire. For example, a special electrical generator may have to be purchased in the ...
One of four SEC divisions charged with regulating investment companies, investment advisers, and variable insurance products. The SEC requires variable insurance products to register with ...
Charging the insured an amount that is above the actual premium required for placing and maintaining the policy in force. ...
Provision in most property insurance policies that permits a policyholder to use the insured premises to store materials and handle them in the manner needed to pursue his or her line of ...
Purchasing bond investments that mature at different time intervals. ...
Addition to a business property insurance policy to cover loss of earnings, subject to a monthly limit, in the event that property of an insured is destroyed and a business cannot continue. ...
Coverage for a lender who has accepted property on the floor of a merchant as security for a loan. If the merchandise is damaged or destroyed, the lender is indemnified. The policy is on an ...
Have a question or comment?
We're here to help.