Split Dollar

What is Split Dollar?

Split Dollar is a non-qualified benefit plan that provides a tax-advantaged program for business owners and key employees. This insurance strategy lets an employer and employee share the cost of a permanent life insurance policy. It can be applied to any permanent life insurance policy that includes a cash value component. 

Under the new tax law, the appeal of this plan has grown. Not only can business owners save on their current taxes, but they can also save on their taxes come retirement.


While this can be done for employees, this strategy is primarily for business owners:

  • Income: $250K+
  • Age under 55
  • Ideally already has a c-corp with retained earnings (optional)

Benefits of Split Dollar

Split Dollar allows business owners to accumulate retirement income tax-free, making it an attractive offer for both themselves and their employees. This program is beneficial for the following reasons:


    • Attracts, rewards and retains key employees
    • Provides tax-deferred growth
    • Income tax-free retirement income
    • Income tax-free death benefits to heirs
    • Relatively easy to establish (IRS approval not required)
    • Availability of term insurance at a cost less than the actual coverage cost
    • Ability to spend company money to buy personal life insurance 
    • Maintains its interest rate at the establishment, even if interest rates rise


The biggest takeaways from using a Split Dollar plan are the tax benefits and company advantages. Instead of being taxed at a normal rate, premiums are taxed at only 21%. If the plan is still growing or active, the corporation can decide to recapture funds from the policy if needed. 


The only disadvantage falls to the business. It typically won’t receive a business tax deduction for the premium payments.



Our proprietary proposal system takes the Split Dollar concept and brands it to your firm. You can select the demographic images, and the color scheme will match your branded colors.


If you have an active case, you can request a customized proposal for your clients by clicking the button below.


If you would like to discuss this or any of our other strategies, feel free to set up a time to connect with our team.

How Do Split Dollar Plans Work?

Typically, these split-dollar life insurance plans exist in business situations. At its basic level, the plan splits a life insurance contract between an employee and the business they work for. The most common plan is the one between an employee and the employer, but other plans can be between the employer and corporation or the employer and shareholder. More rarely, these plans get set up between individuals, a strategy called private split-dollar.


Policy premiums are paid by the company, leveraging the lower corporate tax rates


The premium payments are treated as loans to the employee


The employee assigns the policy to the employer as collateral for repayment of premium loans


The employer is entitled to reimbursement for the premium loans from the policy cash value or death proceeds. The employee is entitled to the excess over the employer’s share.

Two Types of Split Dollar

You’ll find two types of split-dollar plans, the economic benefit arrangement and the loan arrangement. Under the loan arrangement, the employee owns the policy, but the employer pays the premium. Using a collateral assignment, the employee gives an interest in the policy to the employer which places a restriction on the policy limiting an employee can do without the firm’s consent.


Split-dollar insurance can help cost-share insurance premiums and benefits. It provides tax, savings and loan benefits to both employee and employer. 


Advisor’s Resource has experience in executing and communicating a split dollar strategy to key clients. Our expertise will help you grow your relationship with your clients by offering them the plan most relevant to their lifestyle. Contact us for more information on how you can utilize this strategy.

two types of split dollar

Contact Us

Read Our Blog