Life Insurance for Business Owners
A split-dollar plan using life insurance is a financial arrangement between an employer and an employee (usually a key executive) that involves sharing the costs and benefits of a life insurance policy. In most cases a split-dollar plan is used as an executive compensation or key-person strategy.
The employer and employee enter into a formal agreement that outlines how the premiums, cash values, and death benefits of a life insurance policy will be divided between them. It’s a win-win for both parties.
Indexed Universal Life Insurance
This strategy utilizes indexed universal life insurance to allow 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.
IUL Software
Do you work with any business owners who may be a fit for a split dollar plan? We have proprietary IUL software that will help you generate a turn-key presentation explaining this strategy.