Definition and Meaning
Endorsement split dollar (liability) is a unique agreement between an employer and an employee regarding the ownership and control of a life insurance policy. Under this plan, the employer holds ownership and exerts control over the life insurance policy, while also endorsing the policy to protect the employee’s right to access the benefits of the policy. Essentially, it demarcates the beneficiary ensurance for employees while retaining employers’ overarch.
Etymology and Background
The term “split dollar” stems from the arrangement structure, where both the insurer (employer) and the insured (employee) “split” the obligations and benefits of the policy. “Endorsement” in insurance/legal contexts suggests a modification or addition to a policy. This agreement gained traction in corporate America in the mid-20th century as part of advanced estate and corporate financial planning strategies.
Key Takeaways
- Ownership and Control: The employer owns the life insurance policy and has control over its terms and management.
- Employee Protection: Through an endorsement by the employer, employees are secured in their right to the policy benefits.
- Financial Planning: It’s used mainly for sophisticated financial and estate planning methodologies to balance benefits between corporations and high-value employees.
- Split Responsibilities: Typically, the policy is financed through joint contributions or employer payments, recouped later.
Differences and Similarities
Differences:
-
Endorsement Split Dollar vs. Collateral Assignment Split Dollar:
- Endorsement places policy ownership with the employer.
- Collateral assignment gives policy ownership to the employee while providing collateral to the employer.
-
Split Dollar Arrangements vs. Group Term Life Insurance:
- Split Dollar involves shared benefits and joint interest, compared to premiums and direct benefits in group term policies.
Similarities:
- Employee Benefits: Both ensure financial protection for employees’ beneficiaries.
- Corporate Usage: Both are engaged in as part of an employee benefits package.
Synonyms
- Employer-Controlled Life Insurance Plan
- Joint Life Policy Allocation
- Corporate Life Insurance Endorsement
Antonyms
- Individual Life Insurance
- Employee-Owned Life Insurance
- Unendorsed Policy
Related Terms
- Key Person Insurance: Insurance coverage where a business is the beneficiary to recover from the loss of a key employee’s death.
- Executive Bonus Plan: An employer provides a bonus to buy a life insurance policy, but the policy is employee-owned.
Frequently Asked Questions
Q: What benefit does the employer receive in an endorsement split dollar plan?
A: The primary benefit for employers is the ability to control high-value policies for key employees. This structure allows them financial reimbursement on their paid premiums and retains critical asset control.
Q: Can the employee benefit during their tenure from an endorsement split dollar plan?
A: Yes, the employee can access certain cash value benefits or use the death benefits part of broader financial or estate planning strategies.
Quizzes
Exciting Facts
- Historically, split dollar arrangements played a pivotal role in high-value corporate financial planning especially before the significant overhaul in taxation laws.
- These arrangements fostered innovation in how executives’ compensation packages were designed.
Quotations from Notable Writers
“Understanding your faith in the stability of your financial decisions today ensures prosperity for the generations to come.” - Jonathan Powers
Proverbs
“An agreement today for a secure tomorrow, is a cornerstone of worldly wisdom.”
Humorous Saying
“When a life insurance policy and an employer walk into a bar, only the employee leaves with all the benefits and none of the hangovers.”
Government Regulations
Endorsement split dollar plans must comply with IRS regulations, especially those outlined under Split Dollar Regulations issued in 2003, detailed under both Sections 61 and 83 of IRC, ensuring taxed valuations and compliance audits meet appropriate standards.
Literature and Further Studies
For enriched understanding, refer to:
- Split Dollar Life Insurance by Douglas Bennett
- Advanced Financial Planning for Corporates by Chartered Financial Analysts Institute
- IRS Regulations and Compliance Manuals
Stay intrigued, financially astute reader! Learning the finer nuances of sophisticated insurance plans is not just a safeguard but a keystone of thriving corporate and personal worlds.
Be prudent, stay insured, and until next time — may your policies be ever in your favor! 🚀
