Does your company have C.O.L.I?
When corporations own life insurance contracts for business purposes it is known as Corporate Owned Life Insurance or COLI. There are a number of business needs that can be met, very effectively, by utilizing the unique features of properly structured life insurance contracts.
- Executive Bonus Plans (Sect 162)
- Supplemental Executive Retirement Plans (SERP)
- Non-Qualified Deferred Compensation Plans (NQDC)
- Cross-Purchase, Cross-Entity Buy/Sell Agreements
- Key Person Coverage
- Business Continuation Coverage
- Principal/Owner/Executive – Split Dollar Arrangements
- Business Financing and Equipment Leasing Programs
Potential business benefits to consider:
- If designed properly, COLI will have a favorable impact on the company’s financial statements through the income generated from the cash value.
- Assets held in COLI are accounted for using FASB Technical Bulletin 85-4. The full market value of plan assets and any growth thereon can pass through to the company’s income statement.
- Accessing cash values in the COLI policies can provide a much lower cost of money than using traditional lines of credit, business loans, credit cards, etc.
- Businesses can use discounted current dollars (premiums) to buy future dollars (cash values or death benefits). If structured properly, the cash value will not be subject to federal income tax as it accumulates or as distributions are taken.
- The COLI policy allows the business to manage cash flow should the unexpected happen, such as the death, retirement or departure of a key employee.
- In order to maximize cash value growth, a COLI purchase is counter intuitive. The general public wants to purchase as much insurance as possible per $1 of premium paid. A business (or savvy individuals) will want to purchase the lowest amount of insurance per $1 of premium paid – to generate the highest possible cash value accumulation in the contract.
COLI policies, structured for high cash value accumulation, allow for various business needs to be met, while keeping funds balance sheet friendly, providing tax favored growth, as well as penalty and tax free access to liquid cash.
To find out if utilizing properly structured COLI policies might be a good fit for your business needs, request a no obligation, free analysis today…
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