Corporate-Owned Life Insurance (COLI) is a type of life insurance owned by the corporation either directly or via a Grantor Trust and insures the life of an employee. COLI policies are generally used by corporations to informally fund nonqualified executive benefit liabilities. COLI is a tax-favored asset that allows for tax-free growth of investment earnings, tax-free reallocations and tax-free distributions. All death proceeds received by the company, as beneficiary, are also received income-tax-free.
Based on several select benefit and compensation surveys, more than 70% of all nonqualified plans are informally funded with COLI or trust-owned life insurance (TOLI).