Are the Death Benefit Proceeds of a Corporate Owned Life Insurance (COLI) policy tax-free?

Note that under the recently modified rules governing employer-owned life insurance, employers must now satisfy certain notice and consent requirements in order for the death proceeds to be received tax free. The insured employee must be notified in writing that the employer intends to insure the employee’s life, and the maximum face amount of the employee’s life could be insured for at the time the contract is issued. The notice must also state that the policy owner will be the beneficiary of the death proceeds of the policy. And the insured employee must also give written consent to coverage continuing after the insured employee terminates employment. Under another set of requirements, the insured employee must have been an employee at any time during the twelve-month period before his death (or at the time the contract was issued, the insured was a direct or or highly compensated individual). See IRS sections 101( j) and 60391, as amended by the Pensions Protection Act of 2006 (PPA 2006).

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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