Back in August of 2016, Jim Harbaugh took a job at his alma mater, leaving behind an NFL salary for the love of fighting for his Michigan Wolverines. What you may not know is that that August he started a trend amongst his peers of using split-dollar life insurance arrangement as an alternative to deferred compensation. Since Harbaugh’s creative money moves, other schools have followed suit, including Clemson’s Dabo Sweeney and LSU’s Ed Orgeron.
Why Split-Dollar Life Insurance?
If you aren’t familiar with split-dollar life insurance arrangements, essentially it’s a program where an employer agrees to loan dollars to an employee (typically over around 7 years or so) that are invested in a cash accumulation life insurance policy.
You might wonder, what’s the difference between a split-dollar policy and a regular life insurance policy?
Unlike a traditional life insurance policy, where the goal is to pay the lowest premium for the highest amount of death benefit, the split-dollar policies used in these programs like Harbaugh’s, do the opposite and pay the highest premium for the lowest amount of death benefit. This approach lowers policy charges and allows the policy’s cash value to grow rapidly as possible with the least amount of drag.
Depending on the structure of the agreement, at some point – either out of policy cash value during the employee’s lifetime, or out of the death benefit at the employee’s death, the loan from the employer will be repaid.
Guess who’s getting the policy cash value in excess of the loan balance? You guessed it.. The employee. Policy cash value in excess of the loan balance can be accessed by the employee income tax-free supplement cash flow in retirement.
Want to learn more about Split-dollar life insurance policies?
Just give us a call or fill out our contact form and we can start looking at what we can do to clean up your life insurance policies. We work with anyone from individuals, to business owners, and even non profits and community banks or credit unions.
Stay tuned to our blog to learn more about some of the different options that we can bring to the table for you!