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 ...

    Corporate ownership of life insurance or corporate-owned life ...
  2. Key Person Insurance

    Key person insurance is a life insurance policy that a company ...
  3. Guaranteed Issue Life Insurance ...

    A type of financial-protection policy that provides cash to a ...
  4. Insurance

    Insurance is a contract (policy) in which an insurer indemnifies ...
  5. Voluntary Life Insurance

    Voluntary life insurance is a financial protection plan that ...
  6. Decreasing Term Insurance

    Decreasing term insurance is a renewable term life insurance ...
Related Articles
  1. Financial Advisor

    How Life Insurance Can Help With Liquidity

    Life insurance can provide liquidity in personal and business situations when access to capital is essential. Learn how to utilize its unique properties.
  2. Retirement

    Why Own Life Insurance in a Qualified Retirement Plan?

    What are the pros and cons of owning cash value life insurance in a qualified retirement plan?
  3. Insurance

    How to Pick the Right Life Insurance Plan

    Finding the right life insurance policy - if you need one at all - can be more challenging than it seems. Use this guide to find the right one for you.
  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. Insurance

    Life Insurance: How To Get the Most Out Of Your Policy

    There are many benefits to owning a life insurance policy - if you get the right one for you.
  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

    Tips for Helping Clients with Life Insurance Needs

    Life insurance needs will likely change over the client’s lifetime and again financial advisers can provide an objective sounding board.
Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center