Split dollar life insurance refers to the method of funding the life insurance; it is not a type of life insurance policy, as split dollar can be used with a variety of life insurance policies. The owner of the policy splits the life insurance premium with someone else. When the Insured person passes, the death benefit can be used to reimburse one of more of the persons who paid the premium, then the remainder goes to the beneficiary.
Businesses often use split dollar life insurance as a way of providing life insurance coverage to older persons for whom the cost of life insurance is high, or as a way to fund a buy-sell agreement that passes the business from one generation to another.
A split dollar arrangement generally split between two parties: In business split dollar plans, either a collateral assignment or cash value endorsement strategy is used between the employer and the employee who can share differing aspects of the premiums paid, death benefit coverage or acculturated cash values. Life insurance split can also be between a trust and a person with similarities in the structural arrangement of a business.
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Businesses often use split dollar life insurance as a way of providing life insurance coverage to older persons for whom the cost of life insurance is high, or as a way to fund a buy-sell agreement that passes the business from one generation to another.