Split Dollar Loans
Split Dollar Loans: Financial freedom through strategic borrowing.
A split dollar loan is a type of loan arrangement where two parties, usually an employer and an employee, share the cost and benefits of a life insurance policy. The employer advances the premium payments, and the employee repays the loan using the policy’s death benefits and cash values.
Types of Split Dollar Loans
1. Endorsement Split Dollar
In this arrangement, the employer pays the policy’s premium, and the employee is the policy owner. Upon the employee’s death, the employer recovers the loan amount and any accrued interest from the policy’s death benefits.
2. Collateral Assignment Split Dollar
In this arrangement, the employer advances the premium payment and retains an interest in the policy’s death benefits. The employee is the policy owner and can access the policy’s cash values. Upon the employee’s death, the employer recovers the loan amount and any accrued interest from the policy’s death benefits.
3. Reverse Split Dollar
In this arrangement, the employee pays the policy’s premium, and the employer is the policy owner. Upon the employee’s death, the employee’s beneficiary receives the policy’s death benefits, and the employer recovers the loan amount and any accrued interest.
How Split Dollar Loans Work
1. Premium payments
In a split dollar loan arrangement, the employer typically pays the policy’s premium. The employee may contribute to the premium payment, depending on the arrangement.
2. Death benefits and cash values
The policy’s death benefits and cash values are used to repay the loan. Upon the employee’s death, the employer recovers the loan amount and any accrued interest from the policy’s death benefits.
3. Termination of the arrangement
At Truckee Financial, we specialize in split dollar loans and can help you structure a loan arrangement that meets your financial needs. Contact us today to learn more about split dollar loans and how they can benefit you.
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