What is Corporate-owned life insurance (COLI)?
Corporate-owned life insurance (COLI) is a life insurance policy that you take out on the life of one or more of your employees, whereby you are both the owner and the beneficiary of the policy. As owner of the policy, you’re responsible for paying the premiums. As beneficiary of the policy, you retain all rights to the benefits under the policy. Other than being named as the insured, your employee has no interest in the policy. COLI can be used for a variety of reasons, and the use of COLI may or may not bear any relationship to the actual financial loss you may anticipate upon the covered employee’s death. For example, COLI is commonly used as an informal funding vehicle for nonqualified deferred compensation (NQDC) plans . When used as an informal funding mechanism for a NQDC plan, you can borrow against the cash value that accumulates under the policy, and you can then use the borrowed funds to pay the COLI premium payments or to pay the NQDC plan benefits.
Related Questions
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- What is Corporate-owned life insurance (COLI)?
