Here’s how COLI works. The company purchases a specially designed life insurance policy on key executives other senior employees. Because the company owns the policy – and pays the premiums as well – the company receives the death benefit proceeds if the insured executives die prematurely or at their life expectancy. Medical examination may or may not be necessary for approval of the COLI depending on the number of employees, the face value of the policy or policies, and other factors.
Recent industry surveys show that 75% of the Fortune 1000 companies have COLI plans in place at the present time, and the reasons are very clear:
- The after-tax yield of a COLI is very competitive compared with other investment options
- Death benefits are tax-free to the company and can far exceed the costs of the plan in long term
- A COLI can help to fund other benefit plan expenses, particularly those that are unfunded
While insured employees don’t receive any benefits from a COLI plan, most don’t object, either. Such plans make the company more financially viable in general, and while employees can select not to participate, studies show that very few do.
What would seem to be an important factor in evaluating the institution of a COLI is employee turnover, which is much higher today than in past decades. A COLI plan can continue to cover insured employees even after those employees have left the firm. Because the company owns the policy, only the company can dictate whether it continues, is terminated, transfer on other employee or surrendered for the cash value. It’s a worth idea to consider!
Find out why so many of the top organizations are using COLI programs, and how one could help your organization. COLI arrangement and is complicated and requires experienced advisers and third party administrator (TPA) to establish and manage for you. We have set up and are managing thousands of Split Dollar, Deferred Compensation, Defined Benefit and other Executive Bonus Plans across the country for last 17 years for sole proprietorship to large corporations. Please call (877) 972-3262 or contact us for the further information.