Corporate Owned Life Insurance “COLI”

Navigating the COLI maze requires knowledge, experience, and attention to detail, all of which are critical components of a successful COLI purchase and ongoing COLI administration.

With The Cochlan Group, inc. as your COLI partner, you will be provided with an excellent combination of experience, customer service and plan administration.

The Cochlan Group, inc. offers the following COLI services:

  • COLI Education
  • COLI Design
  • COLI Compliance
  • COLI Implementation & Communication
  • COLI Administration
  • Existing COLI Review

What is COLI?

Corporate Owned Life Insurance* (“COLI”) is an attractive asset used by numerous companies to finance nonqualified benefits. The institutionally-priced COLI provides a company with a tax-advantaged asset that matches the tax characteristics of the nonqualified benefits being financed and, ultimately, recovers plan costs from the tax-free insurance proceeds.

Frequently Asked Questions

How does COLI work?

The company purchases institutionally-priced life insurance on a group of highly-compensated and managerial employees – generally, top 35% of compensated employees.

The company pays the premium(s) and is owner and beneficiary of the insurance policies. Typically, these are insurance policies that have an array of investment options for the company to allocate funds.

The company books the cash surrender value of the policies as an asset on their balance sheet and reports any gains or losses on their income statement – no taxes are paid on the earnings. If properly structured, the company may access the cash value tax-free through withdrawals (up to basis) and loans to manage cash flow. Ultimately, the company receives tax-free insurance proceeds to help in recover plan costs.

Why do companies purchase COLI versus other financing options?

Companies use COLI primarily because of its tax-favorable characteristics versus other investments. If properly structured, the main COLI advantages are:

  • Earns a higher after-tax yield than other investments
  • Earnings accumulate tax-deferred
  • Transfers between funds are tax-free
  • Withdraws (up to basis) and loans are tax-free
  • Provides an element of key person insurance on insureds
  • Proceeds are received by the company tax-free and are used to recover plan costs

What rules need to be followed in purchasing and maintaining COLI?

For companies to receive the full tax advantages of COLI, the policies must be properly structured and follow IRS-mandated rules under IRC Section 101(j). In general, companies should follow these main rules:

  • Insure only highest-paid officers, Directors or top 35% of compensated employees
  • Provide written notice and get written consents from each insured
  • Report annually on COLI policies to the IRS (Form 8925)

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*  Insurance Products: 1) are not a deposit or other obligation of or guaranteed by, any bank or bank affiliate; 2) are not insured by the FDIC or any other federal government agency, or by any bank or bank affiliate; and 3) may be subject to investment risk, including possible loss of value. Guarantees are subject to the claims paying ability of the issuing insurance company.