A High-Level View of Split Dollar Life Insurance -
The planning goal of a Split Dollar Arrangement is to provide a business owner or executive with a lowcost executive benefit. From the perspective of the business owner, cost can be measured in two ways, the financial and tax cost. The financial cost relates to the out-of pocket premium expense and the tax cost to the business owner relates to the economic benefit as a result of the employer paying all or most of the policy premium. The business owner's tax cost is not measured by the amount of the premium paid by the employer, but rather the value of the economic benefit of the death protection payable to the business owner's beneficiary. The measurement of this economic benefit for tax purposes is the one-year term insurance cost for the death benefit allocated to the business owner under the Split Dollar Arrangement.
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