Glossary term
Corporate-Owned Life Insurance (COLI)
Corporate-owned life insurance is life insurance a company owns on an employee or other insured person, often for business planning purposes.
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What Is Corporate-Owned Life Insurance?
Corporate-owned life insurance, or COLI, is life insurance owned by a company on the life of an employee, executive, owner, or other insured person. The company is typically the policy owner and may be the beneficiary.
Businesses may use COLI for key person protection, executive benefit funding, buy-sell planning, or balance-sheet planning. The arrangement is regulated and can raise tax, consent, accounting, and governance issues.
Key Takeaways
- COLI is owned by a company, not by the insured employee.
- The business may use it to support key person, benefit, or succession planning.
- Employer-owned life insurance rules can require notice, consent, and reporting.
- Policy cash value, death benefits, and tax treatment depend on contract design and compliance.
How Companies Use It
A company may buy life insurance to protect against the financial loss of a key person, fund deferred compensation obligations, or support ownership transition planning. The policy may build cash value and may pay a death benefit to the company if the insured dies while coverage is in force.
Use Case | Business Purpose |
|---|---|
Key person coverage | Provides funds after the death of an important employee or owner. |
Benefit funding | Helps offset long-term employee benefit obligations. |
Buy-sell planning | Can help fund ownership transfers after death. |
Balance-sheet asset | Cash value may be carried as a corporate asset. |
Tax and Consent Rules
COLI should not be treated as a casual business purchase. Federal rules for employer-owned life insurance can affect whether death benefits are excluded from income. Notice, consent, insured-status requirements, and Form 8925 reporting may be relevant.
Because tax treatment depends on facts and compliance, businesses should coordinate with tax, legal, and insurance professionals before implementing COLI.
Employee and Governance Context
The insured person may have no ownership interest in the policy. That makes disclosure and consent important. Boards and owners should also understand who benefits, how premiums are funded, what happens if the employee leaves, and how policy values are reported.
The Bottom Line
Corporate-owned life insurance is a business-owned policy strategy, not ordinary personal coverage. It can support legitimate planning goals, but only when the company manages tax, consent, and governance requirements carefully.