Almost everyone requires life insurance to cover their families financial peace of mind if they pass away unexpectedly. Life insurance death benefits can contribute money to satisfy a mortgage, create a college fund, pay off loans or complete a retirement fund.

But, just because your family needs life insurance protection does not mean they have the money to procure it. With all the different demands for your money, it can be challenging toidentify the funds needed to pay for all the life insurance protection your family requires.

If you have a corporation or if you are a key employee, there is a worthwhile selective benefit your business can utilize to pay your life insurance premiums. This selective benefit is known as a split dollar arrangement. It’s a benefit that can legally discriminate in favor of owners and selected key employees.

A split dollar arrangement has several unique benefits:

? You may be able to receive the entire amount of coverage that your family requires without paying the premiums from your personal funds.
? Your payment is the income tax on the “economic benefit value” of the death benefits that will be paid to your beneficiaries (economic benefit value is determined by the IRS and is similar to the cost of term insurance).
? The company is able to receive the larger of the premiums it pays or the policy’s cash value from the policy death benefit.
? The company has the possibility of loss if the package ends prior to death and the policy cash values aren’t good enough to pay back the premiums.
? A split dollar arrangement is built through a legal agreement.

There are two types of arrangements:

Endorsement Agreement
? Normally used when the participating employee is not an owner
? The corporation owns the policy
? Employee’s family receives the share of death benefits not paid to the company

Collateral Assignment Agreement (non-equity)
? The valued employee owns the policy
? Contractual rights are named to the corporation aside from the right for an amount of the death benefits to be given to the family
? Normally used when the participant is also an owner

Although split dollar life insurance can be a tremendous benefit it is not for everybody. Please consult with your group of advisors in advance of implementing.

To learn more about split dollar you should discuss with your tax advisor. The information discussed in this article does not consitute tax or legal advice.