Survivorship Life (SL) policies provide a significant income tax advantage while both insureds are alive when an employer uses the policy in a split dollar arrangement. In a basic endorsement split dollar plan with a single life policy, the employee generally is taxed on the term cost of the insurance as measured by the lesser of the P.S. 58 costs or Table 2001 rates (for plans entered into after January 28, 2002) or the actual term rates used.
If the employer uses a SL policy (typically naming the employee and his or her spouse as the insureds), joint and survivor rates based on U.S. Table 38 or the joint and survivor life mortality factors underlying Table 2001 (for plans entered into after January 28, 2002) typically are used to measure the pure term cost. The joint and survivor rates are significantly lower than the single life rates. At younger ages, for a spouse five years younger than the insured, the joint and survivor rates can be 1/200 of the corresponding single life rates. This differential declines at older ages but still may be as much as 1/20 the single life rates at age seventy-five.
After the first death, the single life rates apply with respect to the survivor, not the joint-life rates.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM