AD Banker Comprehensive Practice Exam

What does a split-dollar plan typically entail?

1. Insuring key employees for the sole benefit of the employer

2. Splitting costs of additional insurance between employee and employer

3. Providing a retirement plan for the employee

4. Part of a buy-sell agreement

The correct answer is: Splitting costs of additional insurance between employee and employer

A split-dollar plan typically involves a financing arrangement between an employer and an employee, where both parties share in the costs of a life insurance policy. Typically, the employer pays part of the premium while the employee may cover the remainder, or vice versa. The key characteristic of this arrangement is that both the employer and the employee benefit from the policy, whether it be through the death benefit or cash value accumulation. In essence, the split-dollar plan is designed to enable employees to obtain insurance coverage while minimizing the financial burden associated with obtaining that coverage solely through individual means. This arrangement can also provide a significant recruitment and retention tool, as it represents a valuable benefit to employees when they recognize that the costs are shared. By splitting the costs, this plan can make life insurance more accessible and financially feasible for both parties.