Partial payment of a life insurance policy might be a perk of your employee benefits plan. When you pay part of the premium on your life insurance policy and another party pays part, it is a split life or split premium life insurance policy. Your company might subsidize the cost of life insurance to create a more appealing total benefits package and to help retain and recruit employees critical to the long-term success of the company.
Identification
Companies might offer a split life insurance policies option during the recruiting process for a job, after a promotion or as an added perk if your company places high value on retaining you as an employee. Policies that discuss how much of a premium is your responsibility and how much is your employer's cost are generally split life plans.
Types
There are two basic types of split life insurance polices, based on ownership of the policy. When your employer owns the underlying life insurance policy, it is an equity split dollar life insurance plan. Under this approach, premium payments your employer makes become part of your taxable income. If you own the life insurance policy, your employer's premium payments are classified as an employee loan. Under a loan regimen policy, you are responsible for paying taxes on any discrepancy between the value of the interest charged by the company and the general market rates for loans.
Features
Split life insurance generally is a permanent life insurance plan, such as whole life, universal life or other form of life insurance that covers you for your entire life. The insurers underwriting the plans usually are large insurance companies with strong financial stability ratings.
Benefits
Benefit packages that include insurance policies can help you get higher life insurance payout values with less up-front premium costs. These plans might be considered a deferred compensation benefit because the value of the policy generally is awarded after you have completed your service to the company. Many policies offer a cash-out option that lets you exchange the policy for cash when you retire.
Considerations
You might face significant tax obligations if you accept a split life insurance policy from your employer, depending on the type of policy offered. This tax obligation is not deferred and adds to your general compensation total. The additional taxable revenue also could also bump you into a higher tax bracket overall.
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