Reward Your Most Valuable Employees With a Split Dollar Arrangement

In today’s competitive world, attracting and retaining key people can be critical to the success of your enterprise. One solution for small business owners to incentivize their most valuable employees is with a split dollar agreement. With this method, the business purchases a life insurance policy from Lafayette Life to cover the employee with premium payments shared (or split) between the employee and employer. When the employee passes away, you receive a portion of the death benefit with the remaining benefit going to the deceased employee’s beneficiaries.

Regardless of which split dollar arrangement is chosen from Lafayette Life, you and your Financial Representative may find it can be a flexible, cost-effective incentive program to reward the long-term commitment of your key employees while ensuring the success of your business.

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Consider an Option That Works Best for Your Business

There are two basic categories of split dollar arrangements: economic benefit split dollar and loan regime split dollar. A simple way to determine which method is the best option is to consider who wants to control the cash value of the policy.

Economic Benefit

In an economic benefit split dollar arrangement, the business controls the entire cash value of the life insurance policy and the portion of the death benefit equals premiums paid or the policy cash value, whichever is greater. The death benefit beyond the employer’s ownership interest goes to the employee’s designated beneficiary.

Loan Regime

In a loan regime split dollar arrangement, the employee controls both the cash value and death benefit protection of the Lafayette Life insurance policy. However, the employer makes the premium payments, which are considered a loan to the employee that must be repaid out of the death benefit before the proceeds are disbursed to the deceased employee’s designated beneficiary.

What You Need to Know About Split Dollar Arrangements

Read through our information guide to get all the details about split dollar arrangements.

Split Dollar Arrangements Guide (PDF)

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Beady B. Waddell III

JD, LLM, MBA, CLU^®, ChFC^®
Vice President, Advanced Markets

Katherine D. Goldsmith

JD, CLU^®, ChFC^®, ChSNC^®
Assistant Vice President, Advanced Markets

Marchaun E. Morrison

JD
Assistant Vice President, Advanced Markets

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IMPORTANT DISCLOSURES

The Lafayette Life Insurance Company does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Lafayette Life cannot guarantee that the information herein is accurate, complete or timely. Lafayette Life makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Please consult an attorney or tax professional regarding your specific situation.