DEFINITION of 'Corporate Ownership Of Life Insurance - COLI'
Insurance policies taken out by companies on their employees, with death benefits payable to these companies rather than to the insured person's family or heirs. Corporate ownership of life insurance (COLI) or corporate-owned life insurance refers to insurance obtained and owned by a company on its employees, where it pays all of the premiums and receives all of the benefits.
COLI is generally used to protect a company from the costs arising from the unexpected death of an employee, as well as to fund employee benefits. Unlike "key man" insurance, which refers to company-owned insurance on directors and top executives, COLI may be taken out on any employee. For this reason, it is sometimes derisively referred to as "janitor's insurance" or "dead peasant insurance."
BREAKING DOWN 'Corporate Ownership Of Life Insurance - COLI'
When the employer of a corporate-owned policy is a bank, the policy is referred to as "Bank-Owned Life Insurance" (BOLI).
COLI is separate and distinct from employee benefit plans, since the only beneficiary is the company, and not the employee or the employee's family. COLI policies provide the same benefits to the owner as other life insurance products - death benefits are not taxable, and investment earnings on insurance premiums can grow tax-free within the policy (unless it is surrendered before the insured party's death).
COLI/BOLI policies have drawn criticism from the media and other parties, which question the ethics of companies benefiting financially from the death of ordinary employees.