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Corporate
Owned Life Insurance (COLI)
Under a COLI program, an employer purchases life insurance on individuals
for whom it has an "insurable interest." In many cases, the insured are
the participants in the non-qualified plan being financed, but this is
not always the case. While an employer cannot deduct the premiums it pays
under a COLI program, cash values within the policies generally accumulate
tax free. Furthermore, if an employer holds the policies until the death
of the insured, it receives the death benefit proceeds on a tax-free basis.
Alternatively, because policies provide some liquidity through loans and
partial surrenders, an employer can use existing policies to meet short-term
plan cash flow needs. An employer may simply hold COLI as a corporate
asset, or may assign ownership of the policies to a rabbi or secular trust.
In any event, policy cash values are assets that appear in the corporate
financial statements.
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