Corporate-Owned Life Insurance (COLI)
Understanding the benefits and considerations of corporate-owned life insurance for business owners.
What is Corporate-Owned Life Insurance?
Corporate-Owned Life Insurance (COLI) is a life insurance policy purchased by a business on the life of an employee, typically key executives or owners. The business pays the premiums and is the beneficiary of the policy, receiving the death benefit when the insured person passes away.
Key Benefits of COLI
Tax Advantages
Death benefits are generally received tax-free by the corporation, and cash value growth is tax-deferred.
Key Person Protection
Provides financial protection against the loss of key employees who are critical to business operations.
Cash Value Growth
Permanent life insurance policies build cash value that can be accessed by the business for various purposes.
Estate Planning
Can be used as part of succession planning and estate planning strategies for business owners.
Important Considerations
Legal and Ethical Requirements
COLI policies require proper consent from the insured employee and must comply with various legal requirements. It's essential to work with qualified professionals to ensure compliance.
Who Should Consider COLI?
- Businesses with key employees whose loss would significantly impact operations
- Companies looking for tax-advantaged investment vehicles
- Business owners planning for succession and estate planning
- Organizations seeking to fund employee benefit programs
Types of COLI Policies
Whole Life Insurance
Provides guaranteed death benefits and cash value growth with fixed premiums.
Universal Life Insurance
Offers flexibility in premium payments and death benefits with variable cash value growth.
Variable Life Insurance
Allows investment of cash value in various sub-accounts with potential for higher returns.
Getting Started with COLI
Implementing a COLI strategy requires careful planning and professional guidance. Our team at Metro Accounting & Tax Services can help you evaluate whether COLI is right for your business and guide you through the implementation process.
Next Steps
- Assess your business's key person risks and insurance needs
- Evaluate the financial impact of losing key employees
- Consult with insurance and tax professionals
- Review legal requirements and obtain necessary consents
- Compare policy options and carriers
- Implement and monitor your COLI strategy