AD Banker Comprehensive Practice Exam

What type of insurance arrangement shares the costs between the employee and employer?

1. Group life insurance

2. Term life insurance

3. Split-dollar plan

4. Whole life insurance

The correct answer is: Split-dollar plan

The split-dollar plan is the arrangement that specifically shares the costs of the premiums between the employee and employer. In this insurance strategy, both parties contribute towards the premium payments, allowing for a collaborative approach to funding life insurance coverage. Typically, the employer may pay a portion of the premiums, while the employee is responsible for the remaining balance. This arrangement can be beneficial for both parties: it provides the employee with valuable life insurance coverage while allowing the employer to offer a competitive benefits package without fully bearing the associated costs. Group life insurance, term life insurance, and whole life insurance do not usually involve a cost-sharing mechanism between the employer and employee in the same way. Group life insurance is often purchased by an employer for their employees, with the premium solely covering the employer’s cost. Term life insurance is a type of policy that covers individuals for a specific term and is generally purchased individually or through the employer on a separate basis. Whole life insurance is a permanent policy whose premiums are usually handled entirely by the policyholder, often without employer contributions. Therefore, the split-dollar plan stands out as the unique arrangement where costs are jointly shared.