Company Owned Life Insurance - COLI

AAA

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.

INVESTOPEDIA EXPLAINS '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. Free Look Period

    A period where a new insurance policy owner is able to terminate ...
  2. Death Benefit

    The amount on a life insurance policy or pension that is payable ...
  3. Life Insurance

    A protection against the loss of income that would result if ...
  4. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  5. Premium

    1. The total cost of an option. 2. The difference between the ...
  6. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
RELATED FAQS
  1. What is the difference between moral hazard and adverse selection?

    Adverse selection occurs when there's a lack of symmetric information prior to a deal between a buyer and a seller, whereas ... Read Full Answer >>
  2. What does the lapse ratio in the insurance sector measure?

    The lapse ratio measures the amount of insurance policy renewals with respect to the total number of insurance policies at ... Read Full Answer >>
  3. Why some insurance policies are more expensive than others?

    There are several reasons that an insurance policy can cost more or less at different agencies. Some of the more common reasons ... Read Full Answer >>
  4. Why should I keep track of my insurance policy?

    The number one thing to remember about insurance is that, just like everything else, it changes over time. The top-of-the-line ... Read Full Answer >>
  5. Should I be worried about my insurance company?

    Yes, policyholders should always take a serious look at the financial stability of their current insurance company especially ... Read Full Answer >>
  6. How does adverse selection affect insurance premiums?

    Any limits on an insurance provider's ability to appropriately price risk – to economize on important information – might ... Read Full Answer >>
Related Articles
  1. Home & Auto

    A Look At Single-Premium Life Insurance

    Want to provide for your dependents and finance your own long-term care? Learn more here.
  2. Insurance

    Top 10 Life Insurance Myths

    The most difficult aspect of this complex product is determining how much coverage you need and why.
  3. Home & Auto

    A New Approach To Long-Term Care Insurance

    This practical product can protect you from the rising cost of care and provide for your beneficiaries at the same time.
  4. Home & Auto

    Can You Trust Your Trustee?

    Ignorance and incompetence can cost you money. Make sure your trustee is up to the task.
  5. Budgeting

    Life Insurance

    Life insurance is an important component of basic financial planning. Find out how life insurance works and how insurance companies are able to profit through providing financial security to ...
  6. Options & Futures

    Long-Term Care Insurance: You Have Options

    The latest offerings provide more coverage and the ability to pick and choose what types of coverage you'll need.
  7. Insurance

    Life Insurance: Putting A Price On Peace Of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  8. Retirement

    IUL Insurance: An Alternative Retirement Plan?

    Indexed universal life insurance is the rise. But critics argue that wisely allocated IRA and 401(k) funds will normally offer better returns.
  9. Insurance

    Life Insurance: How Much Does Age Raise Your Rate?

    If you need life insurance, try to get it before your next birthday. Here's why.
  10. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center