B—Corporate Owned Life Insurance (COLI)

The term “company owned life insurance” (COLI), also referred to as corporate owned life insurance, or employer-owned life insurance (EOLI), is used to describe a wide variety of life insurance products that are purchased to fund both employee benefit plans and business insur-ance needs. These products include virtually all forms of permanent life insurance, including participating whole life, interest sensitive whole life, indexed universal life, universal life, and variable life.

Employee benefit plans. COLI products are purchased on the lives of key employees to fund survivor income plans, post-retirement medical benefits, and supple-mental executive retirement plans (SERPs) (see section 4.9[L], Supplemental Executive Retirement Plan (SERP)). When used for funding employee benefit plans, key features of COLI products include:

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1. high early cash values ordinarily exceeding 90 percent of first-year premiums (and some-times equal to or higher than first-year premiums);
2. underwriting considerations providing either guaranteed issue or simplified issue;
3. flexibility in funding variable benefits from both cash values and death proceeds;
4. change of insured provisions;
5. levelized commissions;
6. limited pay features; and
7. contract guarantees relating to mortality charges, expense charges, credited interest rates, and interest rates charged on borrowed funds.

Tax and investment considerations often weigh heavily in the design and implementation of these plans. You will sometimes find products with lower cash value to premiums that focus more on returns at death, but the underwriting concessions on those products are often not as significant as the simplified issue and guaranteed issue programs offered on high cash value products.