Split dollar insurance began in the mid-20th century. It provided a way for an employer and an employee to “split” the “dollars” provided by a cash value life insurance policy.
In its simplest form, the split involved only the death proceeds. Upon the employee’s death, the employer would receive death proceeds equal to the policy’s cash value, and the employee’s beneficiary would receive the balance. The employer retained all rights to the policy’s cash value.
Over the years, split dollar arrangements became more creative, and started directing a portion of the cash value to the employee. The employee’s portion of the cash value was intended to keep the insurance in force after termination of employment, or to provide supplemental compensation.
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