New Jersey Life Producer Practice Exam

What is Split-Dollar Life insurance?

1. A form of irrevocable trust

2. A method of financing an insurance policy

3. A family life insurance policy

4. A non-participating policy structure

The correct answer is: A method of financing an insurance policy

Split-Dollar Life insurance is primarily understood as a method of financing an insurance policy, which allows two parties—often an employer and an employee, or a family member—to share the costs and benefits of a life insurance policy. In this arrangement, one party typically pays the premiums, while the other party receives the death benefit or a portion of the cash value of the policy. This can be beneficial for both parties, as it helps in managing the costs associated with obtaining life insurance while providing a death benefit. Additionally, Split-Dollar Life insurance is frequently used in business contexts to provide key employees with life insurance as part of their compensation package. It is also utilized in estate planning to help transfer wealth between generations in a tax-efficient manner. The sharing of premiums and benefits can be structured in various ways depending on the specific goals of the parties involved.