Thursday, June 4, 2020
In August 2016, the University of Michigan began what has now become a trend when they offered a split-dollar life insurance arrangement to head football coach Jim Harbaugh as an alternative to deferred compensation. Clemson, LSU have done the same for their football coaches and South Carolina the same for its women's basketball coach.
The split-dollar life insurance program is were an employer agrees to loan dollars to an employee (generally over a period of seven years) that are invested in a cash accumulation life insurance policy. The difference between this and a traditional life insurance policy is that they pay the highest premium for the lowest amount of death benefit, which is the opposite of a traditional policy in which you pay the lowest premium for the highest benefit.
This approach minimizes policy charges and allows the policy's cash value to grow exponentially as fast as possible. At some point, the loan from the employer will be repaid, but in the meantime policy cash value in excess of the loan balance can be accessed by the employee tax-free to supplement cash flow in retirement. This is similar to an employer funding a Roth IRA for the benefit of the employee, with a potential death benefit as an added bonus.
Ever thought of coaching Division 1 college football? I bet you are now!
See Jordan Smith, Why College Coaches Are Being Paid With Split-Dollar Life Insurance , Financial Advisor Magazine, May 28, 2020.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.