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Landing 5-Star Recruits: How Successful People Use Split-Dollar Life Insurance to Retain & Reward

A 5-Star Recruit: One of the top players in the nation that should emerge as one of the best before the end of his or her career. The successful use of various financial structures have helped clients recruit and reward their 5-star talent. Split-dollar is one of those financial structures dating back to the 1960s. Split-dollar's original use and application has been advanced by life insurance professionals in its application for clients. Split-dollar life insurance, when designed and managed properly, can deliver unique financial benefits to solve problems around recruiting, retaining and rewarding top 5-star talent. This includes key employees, executives, professional & collegiate coaches, ultra high-net-worth families, and non-profits.

What is Split-Dollar Life Insurance?

Split-dollar is a method of purchasing and paying life insurance benefits. It is not a particular kind of life insurance contract or product. The term “split-dollar” refers to any plan of permanent life insurance under which the right to policy benefits and/or the obligation to pay premiums is split between two individuals or entities. The split is between a “sponsor” (i.e., company/university/parent) and an insured (i.e., the executive/coach/child) who has a need for life insurance protection.

Typically, the corporation pays the annual premium for the permanent life insurance policy in question. In return, the corporation is allocated a share of the resulting cash value of the contract as well as a share of the death benefit. The insured is allocated a share of the death benefit and, in certain plans, a share of the contract’s cash value.

The allocations of (i) premium responsibility; (ii) cash value division; and (iii) death benefit division are defined in the split-dollar agreement.

Split-Dollar with Employment & Compensation Agreements

One use of split-dollar life insurance arrangements that has received more attention over the past several years is in large contracts with college head football coaches. Jim Harbaugh, the head football coach at University of Michigan, received a lot of attention when he inked his contract back in 2016.

Michigan, Jim Harbaugh agree to increased compensation in form of life insurance loan (Dan Murphy, ESPN Staff Writer - Aug 17, 2016)

Other prominent coaches who have used split-dollar life insurance agreements as part of their contract include Dabo Swinney (Clemson - football coach), Brian Kelly (LSU - football coach), James Franklin (Penn State - football coach), and Dawn Staley (South Carolina - women's basketball coach).

Because of the limitations or excise taxes associated with higher paid entrepreneurs, executives, coaches, and non-profits, split-dollar life insurance arrangements are used within employee compensation & benefit packages. For publicly traded companies, you will find reference and footnotes to split-dollar within the Proxy statements.

Example of a Split-Dollar Plan Design:

Loan Agreement (Harbaugh | University of Michigan Summary) [1]

  • University advances $2 million per year in premiums over 7 years so long as Harbaugh continues to be head coach

  • Premium advances are non-interest bearing below-market term loans to be repaid upon Harbaugh’s death

  • Imputed income is recognized by Harbaugh for forgone interest

  • Obligation to repay is evidenced by a non-recourse revolving promissory note to the University

  • Loans are secured through a policy collateral assignment

  • Harbaugh is given the right to access cash value provided that immediately following the disbursement; either:

    1. The cash value will equal or exceed 108% of the total loan; or

    2. Based on a then current in-force illustration reflecting the current crediting rate/charges, the death benefit: (i) will not fall below 150% of the total loan in any year through age 70, and (ii) will not fall below 108% of the total loan from age 71 through 100

[1] TRC Financial was not involved in Jim Harbaugh’s contract or the use of life insurance to create his specific program. The details of the loan agreement highlighted above were obtained from publicly available information.

Split-Dollar Benefits

Split-Dollar life insurance can help deliver increased compensation in the form of a loan under a split-dollar life insurance agreement. The structure is typically designed to provide future income for the employee and golden handcuffs with minimal cost to the employer.


  • Retain a key employee

  • Maintain a secured receivable (backed by the insurance company)

  • Simple to administer and cost effective

  • Under Notice 2007-34, the loan is not subject to 409A and, therefore, not to 457(f)


  • Taxed only on the imputed annual loan interest, not the premium advances

  • No requirement for interest payments (if designed)

  • Potential for tax-free retirement income from the policy (or tax-free exchange of net amount to an annuity upon retirement)

  • Minimal out-of-pocket cost relative to benefits received

  • Loan repayment to employer does not include accrued interest

Our firm has been working with split-dollar agreements for decades. We work with clients and advisors to draft and implement split-dollar plans based on the negotiated terms for both parties (employer and employee). Schedule a call with our firm if you want to discuss split-dollar in more detail.

This is not an offer to sell a security or insurance product. This information is provided for informational purposes only and should not be construed as legal or tax advice. You should discuss your circumstances with a financial professional before making any decisions. This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. File # 4109821.1


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