We suggested that the practice of insuring the lives of rank-and-file employees for corporate purposes was ghoulish…. Kushner must know that the practice is controversial and has often been abused. The back-and-forth sniping touched on many of the issues that led Congress to place significant restrictions on company-owned life insurance, or COLI, in the law. Since then, new COLI policies have mostly been taken out on key, highly compensated corporate executives called key-man or key-person life insurance , a still-common practice that is exempt from provisions of that law.
Felipe M. Tillman loved music -- opera, jazz, country. He played keyboards and drums, sang and was choral director at his Tulsa, Okla. To make ends meet, he worked at record stores, where "he could be close to the music," says his brother Anthony Tillman. One of those jobs was a brief stint in the early s at a Camelot Music store. He never bought life insurance, so his family received no death benefit. But CM Holdings Inc. Like hundreds of other large companies, CM Holdings took out life-insurance policies on thousands of its employees, with itself as the beneficiary.
The concept of corporate-owned life insurance is nothing new. Aside from the Russian upper class, of course, corporations would purchase whole or universal life insurance policies on their employees. More on this below. Still, most of these large companies used COLI to fund employee pension programs. You can read a bunch more about this in an older article from the Wall Street Journal here. Companies would increase their key person policies to skyrocketing amounts, and then enjoy the massive interest write-offs when they borrowed against a plan. Plus, the idea of key man insurance temporarily went out of the window, making insurance for rank-and-file employees more attractive to corporations. The backlash of this reformation was that corporations no longer took out two or three extensive policies. Instead, they opted for 20, or 30, on their many employees.
Corporate ownership of life insurance COLI or corporate-owned life insurance refers to the insurance obtained and owned by a company on its employees. By taking out policies, the companies are responsible for making the premium payments and receive the death benefits rather than the insured person's family or heirs. Corporate ownership of life insurance has a long history in the corporate world and is fairly common in the business world for company personnel including top executives. Many companies refer to corporate-owned policies for senior management as key man insurance.