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
Cost computation form that assumes retirement and commencement of annuity payments on the first day of the month nearest the birthday when a retiree reaches normal retirement age. Most ...
Health insurance contract sold to an individual to provide coverage for medical expenses. Contrast with group health insurance. ...
The space created between the total death benefit and the cash value of a universal life insurance policy. An automatic increase in the death benefit results when the cash value approaches ...
Clause in an insurance policy that describes the administration and submission of claims procedure. ...
Rates used by a property and casualty insurance company that are different from that suggested by a rating bureau. An insurance company may use deviated rates because it feels they are more ...
Insurance company that is organized under the state laws by which the company is licensed and that is called a domestic insurer. Also, this insurance company may be chartered and licensed ...
Wording in life insurance policies to determine the order of deaths when the insured and the beneficiary die in the same accident. For example, if the insured is deemed to have died first, ...
Obligation of the insured to report losses from a covered peril to the insurance company or its representative as soon after its occurrence as possible. ...
Settlement choice under a life insurance policy whereby a beneficiary may elect to have the death proceeds paid in the form of a joint and survivor annuity. ...
Have a question or comment?
We're here to help.