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
Technique designed to permit the exchange of a life insurance policy that has an outstanding loan charged against it for another life insurance policy on a tax-free basis. The procedure is ...
Option under a participating life insurance policy by which the policy owner can elect to have the dividends purchase paid-up increments of permanent insurance. ...
Agreement concerning an insured individual, not the insured's property. A property and casualty insurance contract cannot be assigned, since it follows the insured, not the property. For ...
Rules stating that, under the tax EQUITY AND RESPONSIBILITY ACTS OF 1982 AND 1983 (TEFRA), a plan can not discriminate in favor of key employees regarding contributions and benefits if ...
Terms of a settlement of a life insurance or annuity contract under which monies are currently payable or used at least in part by the beneficiary to fund a new insurance policy. ...
Part of a business liability policy that covers an insured for bodily injury or property damage liability to members of the public while they are on his premises. This coverage is available ...
A form of assessment insurance for which a regular premium is charged. In addition to paying the regular stipulated premium, an insured and other members of a mutual assessment company may ...
Incidents covered under workers compensation benefit. ...
Insurance company whose premium rates are usually below that of other insurance companies and the rating bureau. ...
Have a question or comment?
We're here to help.