Corporate Owned Life Insurance (COLI) is an insurance contract that allows a corporation to accumulate a tax-deferred asset. The company purchases and owns a life insurance policy on a key employee or shareholder and is the primary beneficiary. The corporation pays non-deductible premiums, receives tax-deferred cash values, and receives tax-free death benefit proceeds. The cash value grows tax eff
iciently and may be accessible via withdrawals, policy loans, and collateral loans. The policy will also earn non guaranteed dividends depending on the profitability of the participating account. Since the cash values are not subject to taxation during the accumulation period, the company does not need to pay the income tax costs incurred as under alternative investment vehicles. The full interest or gain remains within the asset, and enjoys the benefits of tax deferred growth and compound returns. In summary, the corporation pays non-deductible premiums, receives tax-deferred cash value accumulation, tax-free death benefit proceeds, and is able to book an asset to offset the account balance liability.
