Updated: Dec 9, 2019
COLI is permanent institutional life insurance which includes an investment component called a cash surrender value. The cash surrender value will grow and compound tax-free from day one generating enhanced earnings for the company as compared to other investments.
COLI has been utilized as an acceptable investment for over 30 years by corporations, banks and insurance companies.
Why are insurance carriers investing in COLI?
1) Protecting the carrier from the loss of a key employee
Death benefit paid the insurance carrier
2) Benefit for Key employees
Use a portion of the death benefit for family protection
Financing non-qualified employee benefits
3) Tax-deferred or tax-free earnings
Policy cash values grow tax-free generating enhanced earnings
No taxation on investment reallocation
No taxation on policy gains until surrender
Tax-free if held to maturity
Especially effective with tax-inefficient assets
Positive cash on cash growth from day one
4) Expansive investment choices
Fund manager examples include Janus, Fidelity, Dimensional, Lord Abbett, Black Rock, American Funds, and many others
Multiple investment styles - Equities, Fixed Income, Hedge Funds, Domestic, and International
Can replace existing assets with ones similar
Has the possibility of significantly improving RBC risk charge
5) Regulatory balance sheet improvement
Favorable RBC (risk-based capital) risk charge
0% RBC charge for life carriers and 5% RBC charge for P&C carriers
Clear Regulatory Guidance
IRS 7702, IRC 101(j), 264(f)
FASB 115, 85-4
Most of the major carriers have purchased COLI, including:
New York Life
COLI (corporate owned life insurance) is an asset that has been owned by banks and corporation for many years. An insurance carrier should take an hour to understand the unique regulatory capital and tax improvements gained by retitling a portion of their investable assets into COLI.