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Split Dollar Life Insurance – Benefits at Half the Cost

Tuesday, May 4th, 2010

Insurance. A reassuring word. Your fallback and your contingency plan in case of unforeseen risks. But of course you know that this assurance comes at a premium…quite literally.

The greater you want, your amount of compensation to be, the larger the premium amount. But if one can’t afford large sums to be paid out as insurance premiums, it doesn’t mean that they have to settle for a smaller insurance amount.

The solution here is to opt for a split dollar life insurance. In this kind of an insurance policy, both the premiums and proceeds of the policy are split between multiple people.

This can mean an employer and an employee, or even a parent and a child. This is a clever planning tool, especially for younger people just starting out their lives, since it enables you to obtain an insurance policy at a subsidized cost, since the policy premium can be divided with your employer or family member. It is a mutually beneficial agreement, wherein all benefits can also be shared.

There are two types of split dollar polices available:

* Endorsement: This policy is owned by the employer, and the insured person’s chooses his beneficiaries and terms of death benefits.
* Collateral: This policy is owned by the employee and the employer’s contributions towards premiums are considered as loan, to be paid off with the compensation from the policy proceeds.

What needs to be kept in mind is that the premium paid is not tax deductable for either party involved. Whoever, with the help of a good financial advisor, all concerned can reap full benefits of such a policy.