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
Agreement under which an insurance company promises to pay all compensation and all benefits required of an insured employer under the workers compensation act of the state or states listed ...
Retirement vehicle permitted under section 403 (b) plan of the U.S. Internal Revenue Code for employees of a public school system or a qualified charitable organization. Under such an ...
clause found in health insurance contracts that requires the insured to pay a specified percentage of the covered health care expenses. ...
Process of the continual reinsurance of a ceding company's portfolio of insurance policies. All premiums that have been ceded become earned premiums. ...
Covers losses resulting from the malfunction of boilers and machinery. Most property insurance policies exclude these losses, which is why a separate boiler and machinery policy or a ...
Total limit of coverage under all policies applicable to the covered loss for which an insured can be indemnified. For example, if two health insurance policies are in force on the same ...
Type of proportional reinsurance under which the ceding company (primary insurer) cedes to a re-insurer its net amount at risk for the amount above its retention limit on a life insurance ...
Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In ...
Buy or sell order for security that expires at the end of the trading date on which it was entered if not executed. ...
Have a question or comment?
We're here to help.