What is split dollar life insurance?

Split dollar life insurance is a type of life insurance arrangement in which the premiums and benefits are shared between an employer and an employee. This approach allows both parties to contribute to the cost of the insurance policy, typically benefiting the employee while also providing the employer with a strategy to attract and retain talent.

The arrangement generally involves the employer paying a portion of the premium, and in return, the employee gets coverage that can be used as part of their compensation package. Upon the employee's death or termination of employment, the employer often recovers its premium payments from the death benefit, while the employee's beneficiaries receive the remaining proceeds.

This shared responsibility for premiums makes it an attractive option for both employers and employees, as it provides a valuable benefit without placing the entire financial burden on either side. This collaboration is what defines split dollar life insurance, illustrating its unique nature compared to other insurance arrangements.