Split Dollar

A non-qualified employee benefit plan in which two parties, the employer and the employee, agree to share the costs and benefits of a permanent life insurance policy. In this plan the employee owns the death benefit and the employer owns all the cash value. Split-dollar allows the employer to build employee loyalty to the business by providing assistance in the purchase of needed life insurance.

 
 

Reverse Split Dollar
Ownership of cash value and death benefit are different than the regular split-dollar. In this plan the employee owns all the equity and the employer owns the death benefit.

 
 

Severance Trust Executive Plans
Under a STEP plan employer contributions are used to purchase life insurance policies, which are used to fund severance benefits and life insurance protection for participants. Employers benefit from a STEP plan by offering current tax deduction, selective participation, tax deferred growth, and it is a great recruiting tool.

 
 

Corporate Owned Life Insurance (COLI)
Under a COLI program, an employer purchases life insurance on individuals for whom it has an "insurable interest." In many cases, the insured are the participants in the non-qualified plan being financed, but this is not always the case. While an employer cannot deduct the premiums it pays under a COLI program, cash values within the policies generally accumulate tax free. Furthermore, if an employer holds the policies until the death of the insured, it receives the death benefit proceeds on a tax-free basis. Alternatively, because policies provide some liquidity through loans and partial surrenders, an employer can use existing policies to meet short-term plan cash flow needs. An employer may simply hold COLI as a corporate asset, or may assign ownership of the policies to a rabbi or secular trust. In any event, policy cash values are assets that appear in the corporate financial statements.