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Funding Corporate Liabilities with Corporate-Owned Life Insurance

As part of a tax-efficient strategy to increase earnings, the executive team, along with the investment committee, acquired institutionally priced corporate-owned life insurance to provide short and long-term funding for corporate liabilities while improving returns on cash and fixed income investments.

Challenge

With a volatile bond market and continued historic low returns for money market and other cash equivalents, the investment committee, along with key executives, were trying to manage increasing corporate liabilities associated with employee benefits and other long-term non-qualified plan liabilities. Traditional funding alternatives required more volatility and delivered tax-inefficient investment returns.

Solution

TRC Financial assisted the company in evaluating a reallocation for a portion of cash and fixed income allocations into Corporate-Owned Life Insurance (COLI). By layering the most recent benefit liability study along with a COLI acquisition, the company was able to evaluate the benefits of COLI along with a prudent reallocation of investment holdings.

  • The corporate benefit liabilities were significant and a portion of the liability was funded with COLI
     

  • COLI allowed the investment committee to reallocate a portion of cash to increase returns by 200+ basis points while providing a chassis to allow tax-deferred (or tax-free) investments across 80+ separate account fund options
     

  • The death benefit portion of the COLI investment allowed the company to fund a portion of its benefit liabilities while providing some death benefit to the executive team

The above client case study is based on the economic results for one of TRC Financial's clients. The economics associated with each individual client are unique and impacted by the insurance product acquired, the performance of the life insurance policy, timing of premium payments, medical underwriting for the insured(s), and the actual life expectancy of the insured(s). The client case study is not intended to be opinion or advice on legal, tax, accounting or investment matters. Private counsel should be consulted prior to application of this general information to specific situations.