A setup that offers life insurance policy benefits and some premium sets you back to a staff member from an employer is a company split-dollar life insurance policy strategy. Typically, a company will help one or a number of essential staff members to purchase required life insurance protection and pay all or a section of the premiums. The employer paid costs will become recovered by the employer from the policy benefits.
There are 2 types of split-dollar life insurance policy strategies: equity split-dollar strategy as well as non-equity split-dollar plan. In enhancement to the department of equity, the tax therapy of a split-dollar life insurance coverage strategy depends upon the ownership of the life insurance policy on the staff member’s life.
Employer Plan Features:
The employer chooses which employees will be covered by the plan and the quantities set aside for every picked staff member.
Internal Revenue Service authorization is not needed for a business split-dollar life insurance policy strategy.
The premium outlays are ultimately recouped by the company.
An organization split-dollar life insurance coverage strategy is intended to keep essential workers. The benefit to the employee is lost if the staff member terminates work.
Employee Plan Features:
Valuable life insurance security is gotten at a minimized or absolutely no out-of-pocket expense.
Funds that had been invested in life insurance coverage are now readily available for various other home expenses or objectives.
In the occasion of the employee’s fatality, the individual beneficiary gets the death continues from the life insurance coverage policy, revenue tax cost-free.
The split-dollar life insurance coverage plan is arranged so that fatality earnings are not subject to estate tax obligation if possible.
If a company stands in a lower tax obligation level compared to the shareholder-employee, a split-dollar life insurance policy is a cost-efficient means for a shareholder-employee of a closely-held firm to change a section of the prices of the owner’s personal life insurance policy to the corporation.
There is a usual problem of the worker generally needing to pay a big section of the premiums in the beginning years of the plan. As a result, a variety of premium sharing variations have been established in order to conquer this problem.
With the many various nuances in the split-dollar life insurance coverage plan, examination with a qualified economic professional is encouraged for any type of employer seeking to give life insurance policy to essential employees.
Geoffrey J. Thompson Finance 