WHAT IS CORPORATE-OWNED LIFE INSURANCE
Corporate-owned life insurance (COLI) is an insurance policy where the owner and beneficiary is a corporation and the life insured is the shareholder/key employee/business owner. This is a policy whose premium is paid by your business, and your business and not your family receive the payout.
Like any insurance, the premium depends on the health of the covered life, and you can redeem the policy for a surrender value. But corporate-owned life insurance has additional benefits to the organization.
COMMON USES OF CORPORATE-OWNED LIFE INSURANCE
Funding a Buy/Sell Agreement. Corporate-owned policies are put in place on all parties with ownership interests. Upon the death of an owner, life insurance proceeds are used to fund the buyout of the deceased partner’s ownership interest.
Key Employee Coverage. Corporate-owned policies are put in place for those key employees whose replacement would be problematic- either because of their skill set or because of their intrinsic value to the organization.
Deferred Compensation/ Non-Qualified Plans. Corporate-owned policies are used to create a bonus plan or deferred compensation arrangement for a particular set of highly compensated employees who either might not be able to participate in a quailed plan (i.e. 401K) or have already contributed the maximum allowable amount and would like additional deferral capabilities.
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