8.3 Special Types of Life Insurance

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

8.3 Special Types of Life Insurance

8.31 Split-Dollar Insurance

Split-dollar insurance is one of the few employee benefits that can be offered to particular key employees without running afoul of too many tax law restrictions.¹⁵ There are variations with split-dollar plans, but basically, life insurance is provided to a particular employee with the employer paying the part of the insurance premium representing the increase in the current year's cash value and the employee paying the balance. The amount paid by the employer is typically a significant part of the premium. The employer then receives the cash value of the policy at the employee's death, and the employee's beneficiary receives the balance of the death benefit. Obviously, while the plan remains in effect, the death benefit received by the employer increases and that received by the employee's beneficiary decreases.¹⁶

Caution: The taxation of these plans is complicated. You should check with a certified public accountant (CPA) or financial planning professional when dealing with split-dollar insurance.

8.32 Key-Man Insurance

Key-man insurance is simply insurance purchased by a business on the lives of certain key employees, including the principal owners. The insurance is...