Split Dollar Loan Regime: A Win-Win for Employers and Employees

In this arrangement, the employer loans the executive the premiums for a cash-value life insurance policy, with the executive collaterally assigning an interest in the cash value and death benefit of the policy to the employer. The executive can access the excess cash value for retirement income or other needs through tax-free policy loans or withdrawals. The executive is taxed on imputed interest income each year based on the employer’s interest rate. The arrangement terminates at a defined point, such as retirement or death, with the remaining cash value accessible through tax-free policy loans or withdrawals for the executive or paid back using policy cash values or life insurance proceeds.

The potential benefits for employers include flexibility in selecting beneficiaries, timing, and amounts of benefits, with lower administrative costs compared to traditional qualified plans. Employers may also recoup their investment if an employee leaves or retires. For employees, the arrangement provides valuable life insurance coverage with flexibility in plan design, potential tax-free income, and tax-deferred growth of cash values. Consider a split-dollar loan regime arrangement as a creative and unique way to reward and retain employees. Contact me today to explore the right plan for your company and employees.

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