Split-Dollar Plan Overview
Obtaining life insurance on an executive.
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Retaining key talent with life insurance.
To help illustrate how a Split-Dollar strategy works, Mezrah Consulting created the following example:
Mezrah Consulting has proposed the utilization of a split-dollar group term carve-out plan (replace all group term life insurance over $50k) whereby a 2x salary life insurance benefit is provided to the participants by way of an endorsement split-dollar arrangement.
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The employer establishes a split-dollar agreement with the employee. The employer owns the policy and agrees to endorse a portion of the death benefit to the employee’s beneficiaries.
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The employer pays the premiums to the insurance company on the life of the employee.
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The employee is taxed on the value of the “economic benefit” of the policy, equal to the value of a term life policy with an equivalent death benefit.
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If the employee passes away - the employer receives the death benefit at least equal to the policy’s cash value.
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The employee’s beneficiaries receive the employee’s portion of the death benefit, federal income tax free.
The net premium expense is the cost associated with the remaining $50,000 of group term coverage per participant.
Note: Assumes 80 participants, average executive age of 52, average executive salary of $250,000, current group term life insurance (GTLI) cost per $1,000 of benefit of $0.062, proposed Split-Dollar benefit amount of 2x salary less $50,000 of group term, 3% annual growth on group term life annual premiums and a 26.5% corporate tax rate.
Hypothetical results are for illustrative purposes only and are not intended to represent the past or future performance of any specific product.