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Life insurance can help provide financial protection for loved ones and, depending on the policy type, may accumulate cash value over time. Some employers offer split-dollar life insurance, an arrangement that allows an employer and employee to share certain costs and benefits associated with a life insurance policy. These arrangements are sometimes offered as part of an executive or employee benefits package. This article explains how split-dollar life insurance works, potential considerations, and alternative life insurance options.
Table of Contents
Split-dollar life insurance is an arrangement between an employer and an employee that outlines how the costs, benefits, and obligations associated with a life insurance policy will be allocated. The arrangement is documented in a written agreement that establishes each party's rights and responsibilities, including premium payment obligations, policy ownership interests, and the distribution of policy benefits. The agreement also generally specifies its duration, termination provisions, and any conditions that may affect coverage or the parties' rights under the arrangement, such as changes in employment status. Employers may offer split-dollar life insurance as part of a compensation or benefits package for certain employees, including executives and other key personnel.1
Depending on the structure of the arrangement, either the employer or the employee may own the life insurance policy. The ownership structure determines each party's rights and responsibilities under the agreement.
In an economic benefit regime, also known as an economic benefit arrangement, the employer owns the life insurance policy. The employer pays the policy premiums and determines the employee’s rights and benefits under the arrangement, including access to policy values and portions of the death benefit. The employee may designate beneficiaries to receive a specified portion of the death benefit if the employee dies while coverage is in effect. Because arrangements can vary, employees should review the terms of the agreement and consult a qualified tax advisor regarding any potential tax implications.
Under a loan arrangement, the employee owns the life insurance policy while the employer pays premiums on the employee’s behalf. The terms of the arrangement generally outline how premium payments are handled and each party’s rights and responsibilities under the agreement. In many loan arrangements, the employee may assign certain policy rights to the employer as collateral for amounts owed under the agreement. This may include an interest in the policy’s death benefit or cash value. Because loan arrangements can vary, individuals should review the terms of the agreement carefully and consult qualified financial, legal, or tax professionals regarding their individual circumstances.
Depending on how the arrangement is structured, split-dollar life insurance may offer certain advantages for employers and employees.
In some split-dollar arrangements, an employer contributes to or pays some or all of the policy premiums. The amount of any employer contribution and the parties' respective rights and obligations are determined by the terms of the agreement.
For employees, employer-funded premium payments may reduce the amount they would otherwise be responsible for paying directly. For employers, split-dollar arrangements may be offered as part of a compensation or employee benefits package.
Split-dollar life insurance arrangements can be structured in different ways to address the objectives of both parties. Depending on the arrangement, policy ownership, premium funding, death benefit rights, and access to policy values may differ.
Loan arrangements may include interest charges and repayment obligations. The specific terms, including how interest is determined and applied, are outlined in the agreement.
Split-dollar life insurance arrangements may have tax consequences for both employers and employees. The tax treatment of premium payments, policy benefits, and policy ownership interests depends on the structure of the arrangement and applicable federal and state laws.
Split-dollar arrangements may have financial, legal, or tax considerations for both employers and employees. Individuals should review the terms of the arrangement and consult qualified professionals regarding their specific circumstances.
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Get StartedSeveral circumstances can result in the termination of a split-dollar life insurance arrangement:
If the insured dies while the arrangement is in force, policy proceeds are distributed according to the terms of the life insurance policy and the agreement. The agreement may specify how proceeds are allocated among the parties involved and any designated beneficiaries.
If the agreement term ends, coverage expires. In this case, both parties settle any remaining loans or unpaid premiums to terminate the policy. Under a loan regime, collateralized restrictions are lifted. In an economic benefit regime, the employee may obtain policy ownership depending on the parties' choice and the agreement. A policy transfer may be taxable to the employee and tax-deductible to the employer.
A split-dollar arrangement may provide for termination when an employee retires, resigns, or otherwise separates from employment. Depending on the agreement, possible outcomes may include:
The arrangement may end before the scheduled end date, depending on the terms of the agreement. Any responsibilities or requirements associated with the end of the arrangement would be addressed in the contract.
Split-dollar life insurance isn’t for everyone. Consider the following factors when determining if you should look for a role that offers it or attempt to negotiate it as part of your benefits:
If split-dollar life insurance isn’t right for you, consider some alternatives:
Split-dollar life insurance is one of several life insurance arrangements that may be available to employees and employers. Because these arrangements can involve legal, financial, and tax considerations, it is important to review the terms carefully and understand the rights and obligations of all parties involved. If split-dollar life insurance isn't right for you, Aflac offers alternative life insurance options. Speak with an agent today to learn more about our life policies and get a quote.
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The life insurance payout beneficiaries receive depends on several factors. Learn what the average life insurance payout is and how payouts are determined.
Life insurance can financially protect loved ones if you pass away. Learn whether life insurance is worth it and what types of policies are available.
The life insurance payout beneficiaries receive depends on several factors. Learn what the average life insurance payout is and how payouts are determined.
Life insurance can financially protect loved ones if you pass away. Learn whether life insurance is worth it and what types of policies are available.
1 Forbes - Split-Dollar Life Insurance Explained. Updated January 23, 2025. https://www.forbes.com/advisor/life-insurance/split-dollar-life-insurance/. Accessed June 11, 2026.
IMPORTANT: Split-dollar life insurance arrangements may have legal, financial, and tax implications. Policy benefits, ownership rights, cash values, and tax treatment depend on the structure of the arrangement and individual circumstances. Consult qualified legal, tax, and financial professionals before making decisions regarding a split-dollar life insurance arrangement.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent/producer.
Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York.
Aflac life plans – A68000 series/Term Life: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68200, A68300 & A68400. In New York, Policies NY68200, NY68300 and NY68400. Whole Life: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368100. In Delaware, Policy A68100. In New York, Policy NYR68100. B60000/Term Life: In Arkansas, Oklahoma, Pennsylvania, Texas & Virginia, Policies ICC18B60200, ICC18B60300, & ICC18B60400. Whole Life: In Arkansas, Oklahoma, Pennsylvania, Texas & Virginia, Policies: ICC18B60C10, ICC18B60100. Not available in Delaware, Idaho, New Mexico, New York, Oregon or Vermont. B61000, Juvenile series: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO & B61JTO. Not available in New York. Q60000 series/Term Life: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania & Texas, Policy ICC18Q60200M. In Delaware, Policy Q60200M. In New York, Policy: NYQ60200M. Whole Life: In Arkansas, Delaware & Oregon Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In New York, Policy: NYQ60100M. Not available in VA.
Accidental Death Rider: NYQ60055, ICC18B60052.
Receipt of accelerated death benefits may affect eligibility for public assistance programs. Benefits may also be taxable, and are not expected to receive the same favorable tax treatment as other types of accelerated death benefits that may be available.
Aflac Final Expense insurance coverage is underwritten by Tier One Insurance Company, a subsidiary of Aflac Incorporated and is administered by Aetna Life Insurance Company. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (NAIC 92908).
In AR, DE, ID, OK and VA: Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22. Not available in NY.
Coverage/plan levels may not be available in all states, including but not limited to DE, ID, NY, NJ, NM, or VA.. Benefits/premium rates may vary based on plan selected. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions.
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Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211
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