Split dollar collateral agreement is a unique tool facilitating the purchase of a life insurance policy by the employee in which the premium payment is split between the employer and the employee. In other words it is an agreement in which the employer and employee arrange to purchase a life insurance in favor of the employee and both the parties share the premium in pre-decided proportions but the policy is owned by the employee.
The employee or the policy owner in return is obligated to compensate the business by assigning an interest in policy equivalent to the outlay on premiums in event of death of the individual. A split dollar collateral agreement should be drafted with proper due diligence and should consist of clauses pertaining to the terms and condition of the employment, the minimum duration for which the employ has to serve the organization, the proportion in which the premium would be divided between the two parties and the collateral interest assigned to the business.
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