Types of Company Owned Life Insurance Available to Employers

Corporate Owned Life Insurance Types

Whole Life – Usually issued by a mutual insurance carrier and the rates of return are based upon the general crediting rate of the underlying insurance carrier inclusive of its dividend performance. The policy usually has limited cash surrender value in the first few years. The policy costs are usually amortized over the life of the insured and if premiums are not paid, the policy will usually be offered as an extended term policy by the carrier in lieu of additional premiums. My have sizable guaranteed rates of return in the later years.

Universal Life – Is a policy that performs based upon the interest rate credited to the policy less the mortality and expense loads. Usually has a lower premium cost than a whole life policy but could lapse if the premium is not paid. The cost of the insurance in the policy goes up as the insured gets older and it may outstrip the performance of the policy causing additional premiums to be paid.

Term Insurance – Good for temporary needs but the costs of these polices go up each year as the insured gets older. Does not have any cash surrender value and usually is not in force when the insured dies (normal mortality age around 83-85).

Variable Universal Life – Is similar to Universal Life but has the ability to allow the owner of the policy to invest in the market. Depending on the carrier and policy design, may have very high cash values in the first few years. Has the flexibility to change premiums and face amounts on a yearly basis and is the preferred choice of employers when designing a COLI plan.

Indexed Universal Life – Is similar to Universal Life.  The charges are deducted monthly from the cash value, and interest is credited based upon a pre-determined index.  That index may have performance CAP, a participation Cap, a guaranteed floor, and/or a guaranteed interest rate These types of products are an alternative to Variable Products and provide downside protection usually with a CAP on upside gains.

Bank Owned Life Insurance (BOLI) – A Universal Life Policy that credits interest based upon the general account of the insurance carrier or the separate account that the bank is allowed to invest in. Usually has 104% or higher Cash Surrender Value in year one and offers a guaranteed rate of return over the life of the policy.

Guarantees are based upon the claims paying abaility of the issuing company.

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