What is split-dollar life insurance for businesses?

Split-dollar life insurance is an arrangement where a business and an employee share the cost and benefits of a permanent life insurance policy. The name refers to the splitting of premium costs, death benefits, or both between the employer and employee.

In an endorsement method, the employer owns the policy and the employee has rights to a portion of the death benefit designated for their family. In a collateral assignment method, the employee owns the policy and assigns a portion of the death benefit back to the employer as collateral for premium payments.

Split-dollar arrangements are most common in larger companies seeking tax-advantaged executive compensation strategies. They're also used in family businesses where older family members fund life insurance for successors.

The IRS has established specific economic benefit and loan regime rules governing split-dollar tax treatment, making these arrangements technically complex. Changes in IRS regulations since 2003 have reduced some of the historical tax advantages, but properly structured arrangements still provide meaningful benefits.

Nevada business owners should involve both an experienced insurance advisor and tax counsel when considering split-dollar arrangements. Agents in our network with business insurance expertise can explain how these structures work and help coordinate with your legal and tax advisors.