In order to attract and retain top talent, companies offer a variety of benefits, some qualified such as like 401(k), Profit Sharing & Defined Benefit Plans and some non-qualified such as Deferred Compensation Plan & health insurance benefits at retirement. Qualified plans must be funded when you offer to your employees but non-qualified plans are not required to be. But whether qualified or non-qualified, offering employee/executive benefits creates a financial obligation for the company, and many companies set aside funds in a variety of ways in order to meet those obligations.
One of the most attractive and flexible financing options is Corporate Owned Life Insurance (COLI). Corporate owned life insurance provides tax-free money when the company needs to fulfill its long-term executive/employee benefits liability. It also provides liquidity should the need arise.
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. Please call (800) 554-7822 or complete the short form for more information.