DEFINITION of 'Company Owned Life Insurance - COLI'

A type of life insurance policy taken out by a company on the lives of employees whom the company considers to be of vital importance to its operations. Under this type of plan, the company in question pays the premium on the insurance but is also the plan's primary beneficiary.

BREAKING DOWN 'Company Owned Life Insurance - COLI'

There are a few reasons why a company would take a life insurance policy out on key employees. For one, the tax-free proceeds that are received after the death of a key person can be used to cover any costs that would arise when hiring that individual's replacement. The insurance policy can also be used to cover employee benefit liabilities.

However, the most notable benefit to a company that institutes a COLI policy comes from the benefit to after-tax net income. This benefit arises when the cash value of the policy becomes larger than the premiums paid. According to an industry survey conducted in 1999 and cited by New York Life Insurance Company, 68% of the Fortune 1000 companies use COLI programs.

RELATED TERMS
  1. Corporate Ownership Of Life Insurance ...

    Insurance policies taken out by companies on their employees, ...
  2. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
  3. Universal Life Insurance

    A type of flexible permanent life insurance offering the low-cost ...
  4. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an ...
  5. Adjustable Life Insurance

    A type of life insurance that combines features of term and whole ...
  6. Annual Renewable Term (ART) Insurance

    A form of term life insurance that offers a guarantee of future ...
Related Articles
  1. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  2. Insurance

    Term Life Insurance: Everything You Need to Know

    Term life insurance is an affordable way to financially protect your loved ones after your death. Here's what you need to know before purchasing a policy.
  3. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  4. Financial Advisor

    Why Do Businesses Benefit From Life Insurance on Employees?

    Companies can buy life insurance on their employees and collect the benefit proceeds. Find out why companies want to benefit from the death of their employees.
  5. Financial Advisor

    Permanent Life Policies: Whole Vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  6. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  7. Insurance

    Getting Your (Insurance) House in Order

    From starting a family to retirement, insurance can play a role in taking care of financial needs. This piece looks at some of the choices you can make.
  8. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
RELATED FAQS
  1. What is the difference between the death benefit and cash value of an insurance policy?

    Understand the difference between the various components of a life insurance policy including the death benefit and a policy's ... Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  6. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
Trading Center