Corporate-Owned Life Insurance (COLI): How It Works In 2026

Corporate-owned life insurance (COLI) is a life insurance policy a company buys on the lives of its employees, with the company listed as both policy owner and beneficiary. It’s used to fund employee benefits, offset benefit costs, and build a tax-advantaged asset on the balance sheet. This guide breaks down how COLI works, what it costs, and whether it makes sense for your business in 2025.

What Is Corporate-Owned Life Insurance (COLI)?

Corporate-owned life insurance, or COLI, is a policy a company buys on an employee’s life, naming itself as the beneficiary to recover costs like benefits or lost productivity when that person dies.

COLI Definition in Plain English

COLI stands for corporate-owned life insurance. A company purchases a life insurance policy — usually a permanent policy with a cash value component — on one or more of its employees. When a covered employee dies, the death benefit goes to the company, not the employee’s family.

That might sound unusual at first, but there’s a practical rationale: companies use COLI to recover the costs of providing employee benefits and executive compensation. The cash value that builds inside the policy can also be used as a tax-advantaged asset while employees are still alive.

Who Owns the Policy and Who Is the Beneficiary?

The employer is both the policy owner and the beneficiary. That means the employer:

Pays the premiums
Controls the policy’s cash value
Receives the death benefit when a covered employee dies

The insured employee’s family receives nothing from this policy directly. That’s a key distinction people sometimes miss — and it’s a reason why COLI has faced public scrutiny over the years.

How COLI Differs From Group Life Insurance and Key-Man Insurance

These three products share some DNA but serve different purposes:

Feature	COLI	Group Life Insurance	Key-Man Insurance
Policy owner	Employer	Employer	Employer
Beneficiary	Employer	Employee’s family	Employer
Who is insured	Broad employee population or execs	Employees	Specific key executives
Primary purpose	Funding benefits, tax asset	Employee benefit	Protect against loss of a key person
Policy type	Permanent (cash value)	Usually term	Term or permanent
Scale	Dozens to thousands of insured	Usually all employees	1–5 people

Key-man insurance is narrowly focused on insuring one or a handful of executives whose loss would seriously hurt the company. COLI, especially in its broad-based form, can cover hundreds or thousands of employees at once.

A Brief History of COLI and the Pension Protection Act of 2006

Companies have used COLI in some form since the 1980s. Early “janitor’s insurance” programs — where companies took out policies on rank-and-file workers without their knowledge — generated considerable backlash and attracted congressional attention.

The Pension Protection Act of 2006 drew the clearest regulatory boundary. It codified IRC Section 101(j), which limits when employer-owned life insurance death benefits can be excluded from federal taxable income. To qualify for the income-exclusion, employers must give written notice to employees, receive written consent, and meet one of several statutory exceptions. This law fundamentally changed how COLI programs are designed and administered.

How Much Does Corporate-Owned Life Insurance Cost?

COLI costs vary based on workforce size, employee ages and health profiles, policy type, and coverage amount per person, so there’s no standard price to quote.

COLI pricing isn’t like buying a term policy online. There’s no instant quote for a program covering 500 employees. Costs depend heavily on the size of your workforce, the ages and health profiles of covered employees, the type of policy, and how much coverage you’re purchasing per person. If you’re exploring COLI for your business, connecting with a licensed specialist through a business life insurance quote tool is the fastest way to get a real number.

Typical COLI Premium Ranges by Company Size

The figures below are illustrative estimates based on industry benchmarks. Your actual premiums will vary based on underwriting.

Small Business COLI: Estimated Annual Premiums for 5 to 50 Employees

Small-business COLI programs covering a handful of key employees — often structured closer to key-person coverage — typically run between $10,000 and $150,000 per year in aggregate premiums. A policy on a 45-year-old non-smoker with a $1 million death benefit in a universal life structure might run $8,000–$18,000 annually on its own.

Mid-Market COLI: Estimated Annual Premiums for 51 to 500 Employees

Mid-market employers running broader COLI programs covering 50–500 lives might see aggregate premiums in the range of $500,000 to $5 million annually, depending on coverage amounts and the demographic profile of the covered group.

Enterprise COLI: Estimated Annual Premiums for 500-Plus Employees

Large enterprise COLI programs — think banks and national retailers — can involve annual premiums in the tens of millions of dollars. These are formal financial products managed by treasury departments, often in coordination with actuaries and outside counsel.

Key Factors That Affect COLI Pricing

Age and Health Profile of Insured Employees

Age is the most powerful pricing driver. A pool of employees averaging 55 years old will cost significantly more to insure than a pool averaging 35. Health underwriting — medical exams, prescription history, and lab work — also affects rates.

Policy Type: Term vs. Permanent (Whole or Universal Life)

Most COLI programs use permanent insurance because the cash value accumulation is central to the financial strategy. Whole life offers guaranteed cash value growth; universal life offers flexibility in premiums and death benefits. Term life is cheaper but builds no cash value, making it less common for traditional COLI purposes.

Coverage Amount Per Employee

The face amount per insured life directly drives cost. Programs funding nonqualified deferred compensation (NQDC) plans often set coverage equal to the projected benefit liability, which can be several multiples of salary for senior executives.

Industry and Occupational Risk Class

A manufacturing company with employees in hazardous environments will pay more than a financial services firm with mostly desk workers. Carriers classify occupations by risk, and that classification affects every policy in a broad-based program.

Carrier Underwriting Standards

Different carriers approach COLI underwriting differently. Transamerica, Pacific Life, Securian, and Nationwide are among the major COLI carriers, and their underwriting philosophies and pricing vary. Getting multiple quotes matters.

How COLI Compares in Cost to Other Business Life Insurance Products

Product	Typical structure	Cash value?	Who benefits?	Relative cost
COLI (broad-based)	Permanent	Yes	Employer	High aggregate, lower per-life
Key-person insurance	Term or permanent	Sometimes	Employer	Moderate
Group life	Term	No	Employee’s family	Low
Split-dollar	Permanent	Yes	Shared	Moderate to high

Get a COLI Quote: What to Expect in the Application Process

Getting a COLI quote isn’t a five-minute process, but it doesn’t have to be painful. You’ll typically provide a census of employees to be insured (age, gender, tobacco status, compensation), your desired coverage amounts, and your benefit-funding objective. From there, a specialist can model out premiums and projected cash value growth across several carrier options.

How Does Corporate-Owned Life Insurance Work?

A company buys a life insurance policy on an employee, pays the premiums, and collects the death benefit when that employee dies, making the business both owner and beneficiary.

Step-by-Step: From Policy Setup to Death Benefit Payout

Employer identifies covered employees — usually a defined group such as all vice presidents and above, or all employees above a certain age.
Employer provides written notice and receives written consent from each covered employee, as required by IRC Section 101(j).
Employer applies for the policies through a carrier, submitting census data and completing underwriting.
Carrier issues policies, with the employer named as owner and beneficiary.
Employer pays premiums, which are generally not tax-deductible.
Cash value accumulates inside the policies on a tax-deferred basis.
Employer accesses cash value if needed via policy loans or surrenders.
When a covered employee dies, the carrier pays the death benefit to the employer, income-tax-free if the IRC 101(j) requirements were met.

IRS Notice 2009-48 reinforced and clarified the consent rules established by the Pension Protection Act of 2006. Before a policy can be issued, the employer must:

Notify the employee in writing that the company intends to insure them
Disclose the maximum face amount for which the employee could be insured
Inform the employee that the company will be the policy beneficiary
Obtain the employee’s written consent before the policy is issued

Employers must also file IRS Form 8925 annually, reporting the number of employees insured under COLI contracts and the total face amount in force. Missing the consent or reporting requirements can cost the employer the income-tax exclusion on death benefits.

Cash Value Accumulation Inside a COLI Policy

Permanent COLI policies build cash surrender value (CSV) over time. That CSV grows on a tax-deferred basis — meaning the company doesn’t pay taxes on the growth each year, only if and when it surrenders the policy for more than its basis.

How Companies Access and Use the Cash Value

Companies can access cash value in two main ways:

Policy loans: Borrowed against the cash value without triggering a taxable event, as long as the policy stays in force.
Surrenders: If the company surrenders the policy (or a portion of its value), any gain above the company’s basis in the policy is taxable.

The most tax-efficient approach is to hold the policy until the employee’s death, at which point the company receives a fully income-tax-free death benefit (assuming consent rules were followed).

Tax Treatment of COLI Premiums, Cash Value Growth, and Death Benefits

Under IRC Section 101(j), the death benefit from an employer-owned life insurance policy is generally included in the company’s gross income — unless the policy meets the notice-and-consent requirements and the insured falls into one of three categories: (1) the insured was an employee within the 12 months before death, (2) the insured was a director or highly compensated employee, or (3) the proceeds are used for certain benefit payments.

COLI as a Tax-Advantaged Asset on the Balance Sheet

Under FASB ASC 325-30, companies carry the cash surrender value of COLI policies as an asset on their balance sheet. Changes in CSV flow through the income statement. This accounting treatment makes COLI attractive for funding executive benefit obligations — as the benefit liability grows, so does the offsetting COLI asset.

BOLI vs. COLI: Overlapping Tax Rules for Financial Institutions

Bank-owned life insurance (BOLI) operates under the same basic IRC framework as COLI. The distinctions are mostly contextual: BOLI is COLI purchased by a bank or financial institution, often subject to additional guidance from banking regulators including the OCC and FDIC. Many of the same tax rules, consent requirements, and accounting treatments apply to both.

Types of Corporate-Owned Life Insurance

Broad-Based COLI: Covering a Wide Employee Population

Broad-based COLI programs insure a large cross-section of employees — sometimes hundreds or thousands of lives. Retailers and financial institutions have historically used broad-based COLI to fund retiree benefit obligations. The economics work because the company is essentially self-funding its benefit liabilities through a tax-advantaged vehicle.

Key-Person COLI: Insuring Executive and Leadership Talent

This is COLI narrowly targeted at executives whose departure would create a measurable financial loss. It overlaps with what most people think of as key-man insurance, though the structure may be permanent rather than term.

Split-Dollar COLI Arrangements

In a split-dollar arrangement, the premium costs and policy benefits are shared between the employer and the employee (or a trust). There are two main structures — loan-regime and economic-benefit-regime — each with different tax consequences. These are often used as executive compensation tools.

Leveraged COLI Programs

Some companies finance COLI premiums using borrowed funds, seeking to arbitrage the spread between borrowing costs and tax-advantaged policy returns. Leveraged COLI attracted IRS scrutiny in the 1990s and early 2000s, leading to tighter regulations. Today, these programs require careful structuring to avoid being treated as tax shelters.

COLI as a Funding Vehicle for Nonqualified Deferred Compensation Plans

One of the most common uses of COLI today is informally funding nonqualified deferred compensation (NQDC) plans. The company doesn’t have to set aside formal assets for NQDC obligations, but many companies do so informally using COLI. The cash value tracks the benefit liability, and the eventual death benefit helps recover costs.

Who Should Consider Corporate-Owned Life Insurance?

If you’re a business owner evaluating your options, life insurance for business owners comes in several forms — COLI is one of the more sophisticated tools in that toolkit.

Industries That Most Commonly Use COLI in 2025

Banking and Financial Services

Banks have been among the heaviest COLI users for decades. BOLI/COLI programs help banks offset the cost of employee benefits while holding a low-risk, tax-efficient asset. Regulatory guidance from the OCC governs bank COLI programs specifically.

Retail and Hospitality

Large retailers with high employee turnover and significant hourly workforces have historically used broad-based COLI to fund retiree medical benefits. The programs generated controversy when they became publicly known, leading to the PPA 2006 reforms.

Healthcare Organizations

Hospitals and healthcare systems use COLI to fund executive benefits and offset the cost of providing benefits to a large workforce. Given the nonprofit status of many healthcare organizations, the tax treatment requires additional analysis.

Manufacturing and Energy

Companies in manufacturing and energy with large, stable workforces and significant executive compensation plans use COLI to informally fund NQDC liabilities.

Company Size and Financial Profile Requirements

COLI typically makes financial sense for companies with:

At least $1 million in annual premium capacity (though smaller programs exist)
A stable, identifiable group of employees to insure
Long-term benefit liabilities they want to offset (NQDC, retiree benefits)
A tax appetite — COLI benefits are most valuable to companies paying the full 21% federal corporate tax rate

Employers in states with notable COLI activity — including Texas, California, New York, Illinois, and Florida — should also be aware of any state-level disclosure requirements that may apply.

When COLI Makes Sense vs. When It Does Not

COLI makes sense when:

You have substantial, long-term benefit liabilities to fund
You’re in a high corporate tax bracket
You can commit to the program long-term (these are not short-term investments)
You have the administrative infrastructure to maintain consent records and file Form 8925

COLI does not make sense when:

Your company is in a net operating loss position and gains no tax benefit
You need liquidity — COLI cash value is tied up inside a policy
You can’t commit to maintaining consent records and regulatory compliance
The optics of insuring employees without their knowledge would create internal culture issues (consent is required, but employees can still react negatively)

Regulatory and Reputational Considerations Employers Must Weigh

Even with proper consent and IRS compliance, COLI can attract negative press. Employers should have a clear internal communication strategy and ensure HR and legal are aligned before launching a program.

How to Get Corporate-Owned Life Insurance

To get corporate-owned life insurance, work with a business insurance specialist or your company’s benefits broker, who can assess your needs and connect you with carriers that offer COLI policies.

Working With a Business Life Insurance Specialist vs. a Captive Agent

COLI is not a retail product. You won’t find it on a carrier’s consumer website. Working with an independent business life insurance specialist — one who has access to multiple COLI carriers — is almost always the better path. Captive agents represent one carrier and can’t give you a cross-market comparison.

Information You Will Need to Start the COLI Underwriting Process

Be ready to provide:

Employee census data: Name, date of birth, gender, tobacco status, job title, and compensation for each proposed insured
Coverage objective: What is the program trying to fund? NQDC liability? Retiree benefits? Key-person risk?
Target coverage amount per insured life
Company financials: At minimum, recent tax returns or financial statements for underwriting

Timeline: How Long Does It Take to Implement a COLI Program?

Small programs (under 25 lives) may be implemented in 60–90 days. Larger broad-based programs covering hundreds of employees can take 6–12 months from initial design through policy issuance, largely because of the underwriting and consent administration involved.

Questions to Ask Carriers Before You Commit

What are your financial strength ratings (AM Best, Moody’s, S&P)?
What is your experience administering broad-based COLI programs?
How do you handle consent administration — do you have a platform?
What are the policy loan terms and credited interest rates?
What are your charges and cost-of-insurance assumptions?

Corporate-Owned Life Insurance: Pros and Cons

Advantages of COLI for Employers

Tax-deferred cash value growth inside the policy
Income-tax-free death benefits when IRC 101(j) requirements are met
Balance sheet asset that offsets growing benefit liabilities (under FASB ASC 325-30)
Benefit cost recovery over time through death benefits
Flexibility — can be structured as key-person, split-dollar, leveraged, or broad-based

Disadvantages and Risks of COLI

No premium tax deduction — COLI premiums are not deductible
Illiquidity — policy loans are flexible, but cash value is not freely accessible
Regulatory complexity — Form 8925, consent administration, state disclosure rules
Long-term commitment — surrendering early can trigger taxes and penalties
Carrier risk — if the insurer becomes insolvent, recovery may be limited to state guaranty fund caps

Common COLI Controversies and How Regulations Have Addressed Them

The biggest historical controversy was “janitor’s insurance” — broad-based COLI programs where employees had no idea they were insured and the company profited from their deaths with no benefit to their families. The Pension Protection Act of 2006 and IRC Section 101(j) addressed this by requiring written employee consent. Today, any COLI program that doesn’t follow these rules loses the income-tax exclusion on death benefits, which eliminates most of the economic rationale for the product.

Frequently Asked Questions About Corporate-Owned Life Insurance

Is corporate-owned life insurance legal?

Yes, COLI is legal as long as it’s structured correctly, with written notice, employee consent, and annual IRS Form 8925 filing required under the Pension Protection Act of 2006.

Yes, COLI is legal when structured correctly. The Pension Protection Act of 2006 and IRC Section 101(j) established clear rules: employers must provide written notice, receive written consent from covered employees, and file IRS Form 8925 annually. Programs that follow these rules and meet the statutory exceptions can exclude death benefits from federal taxable income.

Do employees have to be notified about COLI policies?

Yes, employees must receive written notice before a COLI policy is issued, including the maximum face amount and the fact that the employer is the beneficiary, plus their signed consent.

Yes. Under IRC Section 101(j) and IRS Notice 2009-48, employers must notify employees in writing before the policy is issued, disclose the maximum face amount, inform them that the employer is the beneficiary, and receive signed written consent. Failure to do so can result in the death benefit being treated as taxable income to the employer.

What happens to a COLI policy when an employee leaves the company?

The company keeps owning the policy after an employee leaves, so it can hold it, surrender it for cash value, or transfer it, with no obligation to cancel.

When a covered employee leaves, the employer generally has a few options: keep the policy in force (since the employer owns it), surrender it for its cash value, or in some cases transfer it. The employer is not required to cancel the policy just because the employment relationship ends, though the death benefit tax exclusion under IRC 101(j) only applies if the insured was an employee within the 12 months before death.

Can a small business use COLI?

Small businesses can use COLI, though the economics favor larger scale. A key-person permanent policy covering a handful of executives works best when you have buyout funding needs or deferred compensation obligations.

Yes, though the economics work best at larger scale. Small businesses more commonly use key-man or key-person insurance for similar purposes. That said, COLI structured as a key-person permanent policy — covering one to five executives — can make sense for businesses with significant NQDC obligations or buyout funding needs. A licensed specialist can help you compare options.

How is COLI reported on a company balance sheet?

Under FASB ASC 325-30, your company records the policy’s cash surrender value as an asset, usually labeled “other assets” or “company-owned life insurance,” with CSV changes flowing through the income statement.

Under FASB ASC 325-30, a company records the cash surrender value (CSV) of its COLI policies as an asset, typically classified as “other assets” or “company-owned life insurance.” Changes in CSV from period to period run through the income statement. The death benefit itself is recognized as income when received, offset by the policy’s carrying value.

What is the difference between COLI and BOLI?

BOLI is just COLI held by banks and financial institutions specifically, which adds regulatory oversight from the OCC, FDIC, and Federal Reserve. The core tax rules, consent requirements, and accounting treatment are largely the same.

BOLI (bank-owned life insurance) is functionally the same product as COLI — an employer owns life insurance on its employees and is the beneficiary. The distinction is the purchaser: BOLI refers specifically to programs held by banks and financial institutions, which are subject to additional regulatory guidance from the OCC, FDIC, and Federal Reserve. The underlying IRC tax rules, consent requirements, and FASB accounting treatment are largely the same for both.