Life Insurance
Split-Dollar Life Insurance
Split-dollar life insurance is an arrangement in which two parties—typically an employer and employee—agree to split the premium payments, cash value, and death benefit of a life insurance policy according to a written agreement, often used as an executive benefit.
Last reviewed: May 2026 · Editorial methodology
Definition
Split-dollar life insurance is not a type of policy but a financing arrangement in which an employer and a key employee share the economic benefits and costs of a permanent life insurance policy according to a formal agreement. In the endorsement method, the employer owns the policy and endorses specified death benefit amounts to the employee's beneficiaries while retaining rights to the cash value equal to premiums paid. In the collateral assignment method, the employee owns the policy and assigns the employer a collateral interest equal to the premiums advanced, treating the arrangement as a series of loans from the employer. Under IRS final regulations issued in 2003, split-dollar arrangements are classified as either economic benefit or loan arrangements with specific tax treatment for each. The employee pays income tax on the economic benefit provided—calculated using the insurer's one-year term rates or IRS Table 2001 rates—making split-dollar more tax-efficient for highly compensated executives than receiving equivalent cash compensation. A common design involves the employer paying $20,000–$50,000 per year in premiums on a $2 million whole life policy for the benefit of the executive, with the executive's family receiving the net amount at risk as death benefit and the employer recovering its premium outlay from the cash value. Split-dollar arrangements require careful legal drafting and ongoing compliance with IRC Section 7872 and the 2003 Treasury regulations.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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