What is a split dollar plan?

A split dollar plan is a financial arrangement between an employer and employee to share the costs and benefits of a life insurance policy. In this plan, the employer and employee usually enter into a formal agreement that outlines how the costs and benefits of the life insurance policy will be divided between them.

In a typical split dollar plan, the employer pays for a portion of the life insurance premiums, while the employee pays for the remaining portion. The employer's payments are considered a loan to the employee and are typically repaid by the employee upon the death of the insured or termination of the plan. The employee typically receives the death benefit from the policy, while the employer may receive repayment of the premiums it paid, plus interest.

Split dollar plans can offer several benefits to both employers and employees. For employers, they can be a way to provide valuable benefits to key employees, such as life insurance coverage, while also potentially recouping some or all of the costs associated with the plan. For employees, split dollar plans can provide access to life insurance coverage at a reduced cost, as well as potential tax advantages.

It's important for both parties to carefully review and understand the terms of a split dollar plan before entering into an agreement, as these plans can be complex and may have tax implications. It's recommended to consult with a financial advisor or tax professional to determine if a split dollar plan is the right option for your specific financial situation and goals.