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Question for the Money Doctors

Question submitted on Dec 27, 2013.

Question

in a split dollar plan when is the Employer''s benefit the greatest after 20 years?

Answer

Split Dollar plans generally allow for a return of premium payments to their employer at termination or death. Typically, when the employee severs the employment relationship, the employer receives the cash value of the policy up to the premiums paid. Under such arrangements, if the cash value exceeds the premium in year 15, then it would be the employee that would derive more value after 15 years, 20 years, and beyond. However, there are many policies written that the entire premium is not recovered in cash value after 20 years. So the answer to your question in that case would be the year after 20 years that cash value exceeds premiums.

The growth of cash value is one reason why the quality of the company is important to investigate before purchase. For those interested in maximizing the return on premiums paid, Blease Research has resources that can assist those who contemplate insurance for split dollar arrangements in what may be a potential good value. There are a number of resources an insurance professional should subscribe to: Morningstar for Life Insurance and annuities, Blease Reports, The Life Insurance Forum, and Vital Signs. There are others that are issued by various rating agencies.

Also, particular attention should be paid to structure and how much the insurance agent receives in commissions. More specifically, how the policy is "blended". Many life insurance products allow for the agent to forgo a 100 percent commission on the entire premium and instead select an amount significantly lower, which would drive the value of the split dollar life insurance up significantly over a 20-30 year time frame.


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