What Is Corporate Ownersh♕ip of Life Insurance (COLI)?

Corporate ownership of life insurance (COLI), or corporate-owned life insurance, refers to insurance 🍷policies taken out by companies on their employees, typically senior-level executives.

The company is responsible for making the premium payments, and if the person dies, the company, not the insured person's family or other heirs, receives the death benefit. Such policies came to be called "dead peasa♐nt insurance" after some companies pu🍸rchased life insurance on low-level workers without their knowledge.

How Corpꦏorate Ownership of Life Insurance (COLI) Works

Corporate ownership of life insurance has a long history in the business world, particularly for a company's top executives, whose deaths might have serious financial implications for the company. Many companies refer to corporate-owned policies for senior management as key man or 澳洲幸运5开奖号码历史查询:key person insurance. Companies may also take out life insurance policies on their owners, officers, directors, and debtors. When policies are taken out on lower-level employees, they are sometimes 🐲derisively referred to as janitors in൩surance or dead peasant insurance.

If the purchaser of a corporate-owned policy is a bank, the policy is often referred to as 澳洲幸运5开奖号码历史查询:bank-owned life insurance (BOLI).

COLI is generally used to protect the financial interests of the company that buys it. Because the company owns the policy, it can borrow money or make withdrawals against its cash value, as well. Companies also use COLI arrangements as a way to fund supplemental e💧xecutive retirement plans (ꦆSERPs), a type of deferred compensation arrangement fo🐻r key executives.

COLI policies provide the same tax benefits to the owner that other life insurance products do: 澳洲幸运5开奖号码历史查询:Death benefits are not taxable and investment earnings on the po꧟licy's cash value can grow tax-free or tax-deferred within the policy.

"This tax treatment of COLI policies explains a large portion of their usage, because it is certainly possible for a corporation to make a similar investment without the complication of a life insurance policy," the Congressional Research Service noted in a 2011 report. "Without the life insurance policy, however, such investments would be subject to regular taxation."

Though the federal government is responsible for the tax laws relating to corporate-owned life insurance, the policies are also subject to state regulation, like other forms of insurance, as well as to 澳洲幸运5开奖号码历史查询:Financial Accounting St༒andards Board reporting guidelines. The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation set rules regarding bank-owned life insurance.

COLI may take the form of either an individual or a group life insurance policy. But it is separate and distinct from the group life insurance that com💃panies often offer as part of an employee benefit plan b꧂ecause the beneficiary, in this case, is the company—not the employee or their family.

Another variation of COLI or BOLI policies is 澳洲幸运5开奖号码历史查询:split-dollar life insurance. In that case, the company or bank pays all or part of the premiums and the insured person's heirs may share some 🐻portion of the death benefit if they die.

The 'Dead Peasant Insurance' Controversy

In the 1990s, some companies began insuring their employee base indiscriminately, rarely getting the employees' permission to do so. That practice drew criticism for allowing companies to profit from the death of ordinary employees, whose families received nothing. Then, in 2006, Congress placed limitations on how companies could administer COLI and BOLI policies. For example, Congress limited COLI’s tax advantages to policies taken out on the company's highest-paid 35% of employees. Among other key changes:

• Companies must now inform employees when they want to take out policies to insure them.
• Insured employees must agree to the arrangement in writing.
• Employers must also get written consent from the employee if they want to continue the policy after the employee leaves the company.