A Split-Dollar Plan is an arrangement between an employer and an employee, where the employer and employee share the costs and benefits of a permanent life insurance policy. For example, the employer pays a portion of the premium, and the employee pays the remaining premium. Then, the death benefit of the policy is split between the employer and the employee, with the employee’s beneficiaries receiving the portion of the death benefit that exceeds the total premium payments made by the employer.
The split of the death benefit and/or cash surrender value is typically agreed upon in advance and outlined in the split-dollar plan agreement. This arrangement can be used as a form of executive compensation and can provide tax benefits to both the employer and the employee.