What is true about a split-dollar life insurance plan?

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In a split-dollar life insurance plan, the key characteristic is the sharing of the costs associated with the premiums between the employer and the employee. This arrangement typically involves the employer paying a portion of the premiums while the employee contributes to the remaining costs. The intention behind this structure is to provide a cost-effective way for both parties to benefit from a life insurance policy that may serve as a supplemental benefit for the employee.

Moreover, both parties also benefit from the policy; the employee has access to the life insurance protection, while the employer is often reimbursed for the premiums paid when the policy matures or upon the employee’s death. This shared arrangement distinguishes split-dollar plans from traditional life insurance policies, where one party bears the entire burden of premium payments.

Understanding this division of responsibility in premium payments is crucial when considering potential tax implications and the overall value of the insurance coverage provided through such plans. The sharing aspect also underscores how benefits derived from the policy can extend to both the employee and employer, reinforcing the collaborative nature of split-dollar agreements.

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