Split Dollar Plans for Employers & Executives

A split-dollar life insurance plan is an arrangement in which an employer and an executive share responsibilities and rights connected to a life insurance policy. In a common loan-regime structure, the employer advances premiums as loans while the executive owns the permanent policy. The arrangement documents repayment rights, policy access, collateral, and how benefits are handled at death, retirement, or another triggering event.

Under the loan regime, the employer generally advances policy premiums to the executive as loans. The executive owns the policy and typically assigns a collateral interest to the employer to secure repayment. Loan terms, applicable interest, repayment timing, and treatment at death or policy surrender should be documented carefully. The policy’s cash value or death benefit may be used to repay outstanding advances, subject to the agreement and policy terms.

In the loan-regime arrangement described here, the executive typically owns the permanent life insurance policy, names beneficiaries, and has policy rights subject to the split-dollar agreement and any collateral assignment. The employer does not generally own the executive’s policy, but retains contractual rights to repayment of premium advances. Ownership and control must be clearly addressed in the plan documents and reviewed by appropriate legal and tax advisors.

Yes. A split-dollar arrangement may support retention by providing a valuable long-term life insurance benefit for a select executive. Employers can structure repayment, vesting-related provisions, or other terms to align with continued employment and leadership goals. The effectiveness of a retention strategy depends on the agreement’s design, the executive’s compensation package, policy performance, and the company’s broader talent plan. Legal and tax professionals should review the terms.

Tax treatment depends on the arrangement’s structure, policy ownership, premium advances, the economic benefit provided, and applicable IRS rules. Loan-regime plans commonly require attention to interest rules and documentation. A benefit may have tax consequences for the executive, employer, or both. OOC Unlimited can explain the insurance-funding side of the arrangement, while your CPA and attorney should advise on tax reporting, deductibility, and legal compliance.

Split-dollar arrangements are commonly funded with permanent life insurance because these policies may provide lifetime coverage and cash value potential. Policy selection should consider death benefit needs, premium funding capacity, underwriting, guarantees, cash value features, loans, surrender charges, and carrier provisions. Indexed universal life and other permanent policy types have different mechanics and risks. A policy illustration should be reviewed carefully before any decision is made.

The result depends on the written split-dollar agreement. Possible outcomes include repayment of employer advances, policy continuation by the executive, a policy transfer, or use of policy values to settle obligations. Terms should address resignation, retirement, disability, death, termination, and other events before the arrangement begins. Clear documentation helps both parties understand their rights and reduces uncertainty when employment circumstances change.

Timing depends on the policy underwriting process, the complexity of the arrangement, and how quickly the employer, executive, CPA, and attorney finalize documentation. Life insurance underwriting can require applications, health information, financial review, and carrier approval. Once a policy is approved, the parties can complete the premium-advance and collateral documentation. Starting with a clear executive objective and advisor coordination can help prevent avoidable delays.