COLI · Company-Owned Life Insurance
Your company owns life insurance. Is it still doing its job?
Many companies bought life insurance on key people years ago to protect the business or fund executive benefits, then filed it away. An independent review shows how those policies compare to today's market, and where new coverage fits, so your team can decide with real numbers.
Independent review · No change of agent required · Works alongside your CPA
What COLI is
Company-owned life insurance, or COLI, is permanent life insurance a company buys on key employees or executives, with their written consent. The company pays the premium, owns the policy and is the beneficiary.
It works the same way as bank-owned life insurance (BOLI). The only difference is the owner: COLI is held by a business that isn't a bank, from a manufacturer to a medical practice.
Read: BOLI vs. COLI, what's the difference?What companies use it for
The same policy can serve different purposes. The right design depends on the job you want it to do.
Key-person protection
The death benefit can help the company get through the loss of someone who is hard to replace, such as a founder, a top salesperson or a lead engineer.
Executive benefit funding
Many companies use COLI to informally fund nonqualified deferred compensation or supplemental executive retirement promises. The cash value is an asset the company can draw on when those benefits come due.
Buy-sell funding
In an entity redemption agreement, the company owns a policy on each owner. If an owner dies, the death benefit can help the company buy back that owner's shares.
Offsetting benefit costs
Over time, the cash value growth and death benefits can help offset what the company already spends on employee benefits.
The rules that keep it working
Section 101(j) of the tax code covers life insurance a company owns on its employees. For policies issued after August 17, 2006, the company must tell the employee in writing that it plans to insure their life and for up to how much, and that the company will be the beneficiary. The employee must give written consent before the policy is issued.
When those steps are followed and the insured fits one of the groups the rules allow, the death benefit is generally income tax-free to the company. If they are skipped, much of the death benefit can become taxable. The employer also files Form 8925 with the IRS each year to report the policies it holds.
Premiums are generally not tax-deductible, and cash value growth is generally tax-deferred. Every company's situation is different, so confirm how these rules apply to yours with your CPA or tax professional.
Why older COLI deserves a review
COLI often sits quietly on the books for years, so it can go a long time without a real look.
Crediting rates drift
The rate your policies earn can fall behind what newer products pay, and it rarely gets flagged on its own.
Older product designs
Policies bought 10 or 20 years ago were built with the options of that time. The market has changed since then.
Reviews that check the policy against itself
An annual statement or a review from the agent who sold it usually compares the policy to its own history, not to the market.
Consent paperwork may be missing
On older policies, the 101(j) notice and consent forms can be hard to find. A review is a good time to confirm they are on file.
How a review works
A short process built around your CFO's or owner's time.
A short intro call.
About 20 minutes to understand what you hold, what it was bought to do, and what you'd want to learn.
We gather the policy details.
No change of agent of record is needed to run the review.
An independent comparison.
A team with decades of experience measures your policies against what's available in today's market.
You see the results.
Where your COLI stands, where there may be room to improve, and what any change would involve. Then your team decides, with your CPA.
If a change makes sense, or you're starting fresh
Some companies find their current policies are doing fine. That's a good outcome too.
When there is room to improve, existing policies can often move into newer ones through a 1035 exchange, a section of the tax code that lets one life insurance policy be exchanged for another without triggering tax on the gain. If your company doesn't own COLI yet, we can help design coverage that fits the job you want it to do. Either way, the plan is reviewed with your CPA.
Read: Can you do a 1035 exchange?Common questions
What is COLI?+
Company-owned life insurance is permanent life insurance a company buys on key employees or executives, with their written consent. The company pays the premium, owns the policy and is the beneficiary. Companies use it to protect against the loss of a key person, fund executive benefits or a buy-sell agreement, and offset benefit costs.
Is COLI taxable?+
Cash value growth is generally tax-deferred, and the death benefit is generally income tax-free when the 101(j) notice and consent rules are met. Premiums are generally not deductible, and surrendering a policy can create taxable income. Your CPA or tax professional can confirm how the rules apply to your company.
What is the difference between COLI and BOLI?+
They work the same way. BOLI is owned by a bank, and COLI is owned by a company that isn't a bank. Banks also follow regulator guidance on how much they can hold, which doesn't apply to other companies.
What is 101(j) notice and consent?+
For policies issued after August 17, 2006, Section 101(j) says the company must tell the employee in writing that it plans to insure them, for up to how much, and that the company will be the beneficiary. The employee must consent in writing before the policy is issued. Skipping this step can make much of the death benefit taxable.
Can existing COLI be exchanged into a newer policy?+
Often, yes, through a 1035 exchange. The owner and the insured generally need to stay the same. Surrender charges on the old policy and a new contestability period on the new one are part of the decision, so any exchange is reviewed with your CPA first.
Do we have to change agents to get a review?+
No. The review doesn't require a change of agent of record. You get the results and decide what, if anything, to do next.
Keep learning
Find out where your COLI stands.
A short call, an independent comparison, and a clear answer. If your policies are doing well, you'll know that too.
Educational content only. Not financial, legal, or tax advice. All services are provided by licensed professionals. Coverage decisions depend on individual circumstances.