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