Split Dollar--The Most Powerful Tool in the Box
Life Insurance Selling (08/00) Vol. 75, No. 8 p.130; Baldwin, Charles H.

Split dollar life insurance valuation enables two parties (employer/ employee) to share in the policy's ownership, premium payments, and benefits. There are three premium payment structures used with split dollar. The structures are known as "employer-pay-all," "type A", and "zero taxable income." Under employer-pay-all (EPA), the employer covers the annual premium and is responsible for reporting the taxable term cost in his or her income. The type A structure is similar to EPA, with minor differences. The employer pays the full annual premium, but the employee also makes contributions equal to the cost of the term benefit each year. Zero taxable income (ZTI), meanwhile, solves "cost" problems associated with the EPA approach. With ZTI, the insured employee makes direct annual contributions to the policy. The amount must be equal to the employee's annual taxable term cost. Sometimes, a split dollar arrangement must be undone. This process is known as a split dollar rollout. The rollout begins when the employer or corporation recovers its total premium payments. A rollout occurs when there is no longer any interest in said policy. At the end of the process, the insured employee owns 100 percent of the policy's death benefit and cash value.


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