Tax-efficient funding for executive benefits
Corporate Owned Life Insurance (COLI) is a life insurance arrangement where the employer purchases, owns, and is the beneficiary of policies on the lives of key executives. COLI serves as a tax-efficient mechanism to offset the costs of employee benefit plans while building valuable corporate assets.
Many of the largest American companies—and the vast majority of financial institutions—use COLI as a funding tool for executive benefit programs. For companies with nonqualified deferred compensation plans, COLI has become the preferred funding vehicle for hedging benefit liabilities.
Primary Use Case
COLI is most commonly used to informally fund nonqualified deferred compensation (NQDC) plans. Companies typically purchase variable universal life (VUL) policies with investment options that mirror participant elections, creating an effective hedge against benefit liabilities.