About Endorsement Split Dollar
Endorsement Split Dollar is a type of executive benefit intended to retain key executives. Many top executives need additional personal life insurance protection. Endorsement Split Dollar is a strategy that is intended to assist key executives to meet pre=retirement life insurance death benefit needs.
How Does It Work?
The employer purchases a life insurance policy insuring the executive. Prior to the issuance of the life insurance policy, the employer must provide written notice to the executive that it intends to continue the coverage beyond the executives employment. The employer must also notify the executive as to the maximum amount of life insurance that could be placed on the executive's life. The executive must give written consent to such life insurance coverage.
As a policy, the employer has the right to exercise all the policy rights and nonforfeiture privileges, including the right to borrow or withdraw against the policy's cash value and the employer retains the right to changes the beneficiary for its portion of the death benefit.
Through an agreement, the employer "endorses," or grants to the executive, the right to designate the beneficiary part of or the entire death benefit in excess of the cash value. In the event of the executive's death, the employer will receive the death benefit at least equal to the cash value while the executive's heirs will receive the executive's portion of the death benefit income tax-free.
There are generally two premium options with an split-dollar arrangement:
The executive will pay premiums equal to the Reportable Economic Benefit (REB) on his or her portion of the death benefit and the employer will pay the remainder of the premiums.
The employer will pay all premiums due. The executive will pay no premiums, but the REB on his or her portion of the death benefit will be taxable to the executive.