Split Dollar Plans - What Are They?

Split Dollar Plans - What Are They?

Split Dollar Plans - What Are They?

Split Dollar plans are also referred to as split life insurance or split premium insurance. This is not so much a type of life insurance plan as it is a method for payment. This type of plan is generally put in place by a company in order to reward workers or to add an extra facet to the benefits package offered to employees. The purpose of this type of plan is simple: to attract and retain valuable employees. Many companies also use this type of life insurance policy as a way to provide a bonus to retiring executives.

A split dollar plan can operate in a number of different ways. Perhaps the most common type of split dollar plan is one in which both the company and the employee pay a portion of the premiums. If the employee passes away, the death benefits go to his or her beneficiaries after the company has been paid back for their share of the premiums. In this situation the company makes it possible for the employee to purchase a far more valuable policy than they would have otherwise been able to afford. Some companies only require back a portion of their premiums while others may receive not at all.

Exactly how the plan is put in place will vary from company to company but the desired result is generally the same. The employees get more life insurance for their dollar and companies are able to offer an extra incentive to their workers. Some companies also use these types of plans as part of their overall retirement package. At retirement, an employee may be offered the opportunity to cash out the policy rather than continuing to pay into it until their death. Split dollar plans generally involve permanent life insurance policies and may even include investment opportunities for the employee.

It is easy to understand why these types of policies have become so valuable in the eyes of so many corporations. It offers them an affordable means of providing life insurance to their employees and they are able to recoup their investment if the employee passes away. Since split dollar plans are a type of payment method rather than an actual variety of life insurance policy, they can be put into place in a variety of different circumstances. Split dollar plans can also be used to help cover the costs of medical insurance or a variety of other expenditures.

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