The concept of corporate-owned life insurance is nothing new. Aside from the Russian upper class, of course, corporations would purchase whole or universal life insurance policies on their employees. More on this below.
Corporate ownership of life insurance COLI or corporate-owned life insurance refers to the insurance obtained and owned by a company on its employees. By taking out policies, the companies are responsible for making the premium payments and receive the death benefits rather than the insured person's family or heirs. Corporate ownership of life insurance has a long history in the corporate world and is fairly common in the business world for company personnel including top executives. Many companies refer to corporate-owned policies for senior management as key man insurance. For other employees, policies are sometimes derisively referred to as janitor's insurance or dead peasant insurance. This is indicative of their lower status in the company. COLI is generally used to protect the interests of the company and hedge against things like the unexpected death of an employee. Since the company is the beneficiary of the policy, it can decide whether and how to use its cash value and is able to borrow against or make withdrawals against it as well. Policies may also be used to fund employee benefits. An important point to note is that these policies are separate and distinct from employee benefit plans, since the only beneficiary is the company—not the employee or their family.
Subscriber Account active since. ElvertBarnes via Flickr Have you heard the term dead peasant life insurance? It refers to a life insurance policy an employer holds on an employee. The practice began with companies insuring key employees, those whose loss would severely impact company operation. Later, some companies decided that employee life insurance was a sound investment in general, and they began to take out policies on low- and middle-level employees. At times, the employees would not be informed.
Corporate-owned life insurance abbreviated COLI is life insurance purchased by a business on the life of an employee. The business is the beneficiary and the employee is the insured subject of insurance. When the employee dies, the business receives death benefits from the insurer. The company may remain the beneficiary even after the insured employee has left the firm. COLI may be written on one employee or a group of workers. Corporate-owned life insurance was created to protect businesses from the deaths of executives who were essential to the companies' operations. The coverage is controversial as some people think businesses should not benefit from the deaths of their employees. COLI was abused in the s and s when large companies purchased policies on thousands of low-level employees without their knowledge to exploit tax loopholes. Congress closed the loopholes in by passing the Pension Protection Act.