Indiana Split-Dollar Life Insurance refers to a type of life insurance policy that allows two parties, commonly an employer and employee or a business and shareholder, to share the cost and benefits of the policy. This arrangement is typically used as an employee benefit or a business planning tool. In an Indiana Split-Dollar Life Insurance policy, both parties agree on the terms and conditions of the policy, including the premium payments, death benefits, and ownership rights. The split-dollar concept enables the policyholder to receive a portion of the policy's cash value during their lifetime, while the remaining benefits are paid to the designated beneficiary upon their death. There are two main types of Indiana Split-Dollar Life Insurance: 1. Endorsement Split-Dollar: In this type of split-dollar policy, the employer or business pays the policy's premiums and retains an endorsement or collateral assignment on the policy. The employee or shareholder is typically responsible for any additional premium costs related to their risk classification. Upon the policyholder's death, the employer recovers the premium payments made and the remaining benefits are paid to the beneficiary. 2. Loan Regime Split-Dollar: This variant of Indiana Split-Dollar Life Insurance involves the employer or business lending the premium amount to the employee or shareholder to pay for the policy. In this case, the employee or shareholder owns the policy and is generally responsible for repaying the loan plus interest to the employer. Upon the policyholder's death, the employer's loan is repaid from the death benefit, and any remaining benefits are paid to the beneficiary. Indiana Split-Dollar Life Insurance offers various advantages to both employers and employees/shareholders. Employers can use it as a non-taxable employee benefit, enhance retention rates, and secure the repayment of premium amounts. Employees/shareholders can receive life insurance protection with potential tax advantages and access to cash value during their lifetime. If considering Indiana Split-Dollar Life Insurance, it is advisable to consult with a knowledgeable insurance professional or financial advisor who can assess individual circumstances and help design the most suitable split-dollar policy.
Indiana Split-Dollar Life Insurance
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FAQ
If the employer is the owner of the split-dollar policy, the employer's premium payments are treated as providing taxable economic benefits to the executive. The economic benefits include the executive's interest in the policy's accessible cash value and current life insurance protection.
Split Dollar Loan Regime Agreement & Contract Generally, at the employee's death, the employer receives a portion of the death benefit (usually equal to the total premiums plus interest from the loan) and the employee's beneficiary receives the balance.
While split-dollar life insurance arrangements offer numerous advantages, they also come with potential drawbacks, such as complexity, tax considerations, and limited availability. Both employers and employees must carefully weigh the benefits and disadvantages of this type of arrangement before deciding to pursue it.
There is no cost to the employee-participant unless the policy is transferred to them. This endorsement split-dollar plan is most often used to provide a low-cost death benefit to the employee-participant as a fringe benefit or where the employer wishes to own the policy and/or obtain key person protection.
If you withdraw up to the amount of the total premiums paid into the policy, the transaction is not taxable as it is considered a return of premiums. If, however, you then withdraw any gains on the policy (like dividends), then these amounts could be taxed as ordinary income.
Answer: Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.
There is no cost to the employee-participant unless the policy is transferred to them. This endorsement split-dollar plan is most often used to provide a low-cost death benefit to the employee-participant as a fringe benefit or where the employer wishes to own the policy and/or obtain key person protection.
There are 2 types of split dollar plans. Collateral assignment / loan regime. Endorsement split dollar / economic benefit regime.