Company Owned Life Insurance - COLI

Company owned life insurance is life insurance on the lives of the company’s employees.

In the event that an employee dies, the death benefit is paid to the employer (who owns the policy). It’s like the company has taken out a policy on the employee.

Why would a company perform this macabre act? Well, in many cases, that particular employee has uniquely valuable assets that the company deems irreplaceable (other than by virtue of a fat check from the insurance company). See Key Person Insurance for more grit.

The company is named as the beneficiary, with the thought that the death benefit is the value of the key person in terms of recruitment costs and/or training required to replace that individual. It can be used to buy out the surviving spouse of the key person if the key person was a partner.

While all of this may sound coldly calculating, it makes sense for many companies and is, in fact, proper fiduciary guidance. In a different spin, companies will sometimes pass through COLI to that company’s employee’s grieving spouse (or kids or dog or whoever is named on the policy). The company gets a tax deduction for the premium payment expenses, and often the appreciation in value of the policy itself, if the death benefit goes to the employee’s family.

And of course, in all of the above examples, the deceased will be missed. Or so the card will say.