Shift in Corporate-Owned Life Insurance Strategies as Companies Reassess Benefits for Executives and Employees

In recent years, corporate-owned life insurance (COLI) has become an increasingly popular benefit offered by companies to their executives and high-value employees. As the nature of work continues to evolve, businesses are reassessing their benefits packages to attract and retain top talent. There are several types of COLI policies available, each with its own unique characteristics and benefits. A traditional COLI policy pays a death benefit to the company upon the insured’s passing, allowing the business to access funds for estate taxes, outstanding loans, or other business obligations. In contrast, an accelerated death benefit (ADB) policy provides a lump-sum payment to the insured or their beneficiary if they become seriously ill or disabled. Another type of COLI policy is the waiver of premium (WOP) policy, which waives premiums due to disability or illness. This can provide significant financial relief for executives and employees who are unable to work due to health issues. The benefits of offering COLI as a benefit extend beyond the company itself. For example, COLI policies can be used to pay estate taxes, thereby reducing the burden on family members or heirs. Additionally, COLI policies can provide a source of funds for business succession planning, allowing companies to transfer ownership and control to new generations. From a tax perspective, COLI policies are subject to certain rules and regulations. In general, premiums paid by the company are deductible as ordinary business expenses. However, the death benefit received by the company is considered taxable income to the executive or employee. This can have significant implications for the individual’s tax situation, highlighting the need for careful planning and advice from a qualified tax professional. As companies continue to reassess their benefits packages, COLI is emerging as an attractive option for executives and employees alike. By providing access to funds for estate taxes, business succession planning, and other purposes, COLI policies can help individuals navigate the complexities of life and death.