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  • How does corporate-owned life insurance help me on the job?
  • January 21, 2014
  • Corporate-owned insuranceBy National Association of Independent Life Brokerage Agencies

    Michael Moore’s film, “Capitalism: A Love Story,” includes a small focus on a segment of the life insurance marketplace called corporate-owned life insurance, commonly referred to as COLI. Moore’s assertions on COLI, and some subsequent media reports, mis-characterize the truth about this important life insurance product.

    In the current fiscal environment, protecting jobs and employee benefits has never been more important. COLI serves both of these functions. COLI is a life insurance policy used by employers to keep businesses running and protect jobs after the death of owners or key employees. It also is used to finance employee benefits, including broad-based health, disability, survivor and supplemental retirement benefits.

    Through COLI, employers are taking the responsible step of setting aside assets to protect jobs and to make sure they are able to deliver on their employee benefit promises. Employers do not receive a tax deduction for purchasing COLI and employees pay nothing but receive substantial benefits in connection with the product.

    Congress has consistently reaffirmed the benefits of COLI. Most recently, it enacted the Pension Protection Act of 2006 on a broad bi-partisan basis after three years of study, enhancing requirements and safeguards by codifying COLI best practices with new section 101(j) of the Internal Revenue Code

    Indeed, well before the PPA and section 101(j), it was common practice for employers to take out COLI only on highly compensated employees after notice and informed consent. Section 101(j) makes clear that COLI can only be taken out on officers, directors and highly compensated employees with notice and their informed consent. To ensure compliance, the IRS requires annual reporting by employers on COLI usage. Non-compliance results in the taxation of policy proceeds. The PPA locks in responsible use of COLI by making non-compliance economically untenable. COLI should be seen for what it is: a way for responsible employers to protect jobs and benefits.

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