Corporate Owned Life Insurance
In order to attract and retain top talent, companies offer a variety of benefits, some qualified and some non-qualified. Qualified plans must be funded, while nonqualified plans are not required to be. But whether qualified or unqualified, offering 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 valuable and flexible financing options is corporate owned life insurance (COLI). Corporate owned life insurance provides tax-free money just when the company needs it the most, such as at the death of a key executive. It also provides a cash value that can be borrowed against should the need arise.
Here’s how COLI works. The company purchases a life insurance policy on a key individual or group of individuals. Because the company owns the policy – and pays the premiums as well – the company receives the proceeds if the insured or one of the insured dies prematurely. The employee or employees that are insured must be notified of the company’s intent to purchase the insurance, and must give their written consent. Medical underwriting may or may not be necessary 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 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 in 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, or surrendered for the cash value.
Find out why so many of the top organizations are using COLI programs, and how one could help your organization. Contact a BeamaLife at (800) 554-7822 to speak with senior corporate advisor today!