Split-dollar life insurance is an arrangement in which two parties, often an employer and employee or a parent and an irrevocable trust, share the costs and benefits of a life insurance policy. One party typically pays premiums or advances funds, while the other holds some or all incidents of ownership. At death or rollout, the premium provider recovers its contributions (plus possibly interest), and the balance of death benefit or cash value goes to the other party. Modern split-dollar arrangements are structured under either the economic benefit regime, where the non-owner is taxed on the value of insurance protection, or the loan regime, where premium advances are treated as loans subject to applicable federal rates. Split-dollar life insurance can help fund executive benefits, estate liquidity, and large trust-owned policies while managing cash flow and tax treatment.

Advisors propose split-dollar life insurance in closely held businesses, professional firms, and high-net-worth families seeking efficient ways to fund large policies. They coordinate design with legal and tax counsel, selecting between economic benefit and loan regimes, and modeling long-term outcomes under different rollout scenarios. Documentation, valuation methods, and annual reporting are critical to avoid adverse tax surprises. In estate planning, parents may use split-dollar to fund large policies inside irrevocable trusts without making equivalent annual gifts. Understanding split-dollar life insurance allows advisors to unlock sophisticated planning strategies while respecting complex IRS rules and carrier administrative requirements.