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SEO Meta Description: Company Owned Life Insurance (COLI) explained: Learn how COLI funds executive benefits, achieves cost recovery, and ensures IRC 101(j) compliance.

Company Owned Life Insurance (COLI) is a life insurance arrangement in which a corporation or partnership insures selected employees, owns the policy, pays the premium, and is the beneficiary. In a properly designed case, COLI is used as a balance sheet asset that can support long-term executive benefit liabilities, improve tax-efficient asset positioning, and create a path toward cost recovery.

From a technical standpoint, COLI is not simply about death proceeds. It is a life insurance asset with cash value that generally grows tax-deferred, remains under company control, and can be aligned with obligations such as Nonqualified Deferred Compensation (NQDC) plans, supplemental retirement arrangements, and other executive benefit commitments.

What is COLI?

At its core, COLI is employer-owned life insurance placed on eligible employees for a business purpose. The structure is straightforward:

• The company owns the policy
• The company pays the premium
• The company is the beneficiary
• The insured employee provides notice and consent before issue

The planning value comes from how the policy is used inside the business. COLI can function as a tax-advantaged asset on the balance sheet, providing cash value accumulation during the insured's lifetime and death benefit proceeds that may help reimburse the company for benefit costs later.

How COLI Works as a Balance Sheet Asset

COLI is typically evaluated as a long-term corporate asset rather than a current expense strategy. The policy's cash value is recorded as an asset, and growth inside the contract is generally tax-deferred. For businesses comparing alternatives, that can create a more efficient holding environment than fully taxable fixed-income or short-term corporate cash positions.

When paired with executive benefit obligations, COLI is often used to support:

• Deferred compensation liabilities
• Supplemental executive retirement plan costs
• Split dollar program financing
• General long-term benefit funding design
• Formal balance sheet asset-liability alignment

The result is a financing structure that can better align corporate assets with future obligations.

Designing COLI Around the Liability

A COLI case should be engineered around the obligation it is intended to support. That means identifying the liability, measuring the timing of the obligation, selecting appropriate insureds, and evaluating how policy performance interacts with the employer's broader benefit design.

At Schiff Executive Benefits, that planning process starts with the technical objective. We reverse engineer the structure around the company's financial intent, the liability profile, and the compliance requirements. Whether the objective is to support deferred compensation or coordinate with Split Dollar Programs, the financing should match the promise. This methodology is central to The Perfect Plan^®.

The Technical "Insider" Advantage

When it comes to executive benefits, compliance isn't just a checkbox, it's the difference between a tax-free asset and a major IRS headache. This is where our expertise is unmatched.

Our President, Matt Schiff, didn't just study the laws; he helped write them. In 2003 and 2005, Matt served as a ranking member of the AALU's NQDC Committee alongside Michael Goldstein. Together, they worked in the "room where it happened," helping to draft the very regulations that govern IRC 409A and IRC 101(j) today.

When we talk about COLI compliance, we are coming from a place of deep technical authority. We understand the nuances of IRS Form 8925 and the strict notice-and-consent requirements that must be met before a policy is issued. If you miss a single signature under IRC 101(j), your tax-free death benefit could suddenly become taxable income. Can you afford that risk?

You can hear more about these technical "deep dives" and the history of these regulations by listening to Matt's interview with Dan Hogans (formerly of the IRS Treasury) on The Perfect Plan^® Podcast.

IRC 101(j): The "Make or Break" of COLI

Since the Pension Protection Act of 2006, COLI has been governed by strict rules. To keep the death proceeds tax-free, a business must:

• Provide Written Notice: The employee must be notified that the employer intends to insure their life.
• Obtain Written Consent: The employee must consent to being insured and acknowledge that the coverage may continue after they leave the company.
• Meet Eligibility Rules: Only "highly compensated" employees (as defined by the IRS) or those with an ownership stake generally qualify.

We manage this process with meticulous detail, ensuring that your program remains evergreen and compliant year after year.

Cost Recovery Mechanics

One of the primary technical reasons businesses use COLI is cost recovery. The employer funds premiums with the expectation that the policy's values and eventual death proceeds will offset, and in many designs substantially recover, the cost of the benefit being financed.

In broad terms, the mechanics work like this:

• The employer pays premiums into the policy
• Cash value accumulates over time on a tax-deferred basis
• The policy is positioned alongside the benefit liability it is intended to support
• At the insured's death, proceeds are paid to the company, subject to compliance with applicable tax rules

That is why COLI is often viewed as a strategic financing asset rather than a simple insurance purchase.

Why IRC 101(j) Matters

IRC 101(j) is one of the most important technical rules in employer-owned life insurance planning. If the notice, consent, and eligibility rules are not satisfied, death benefit proceeds that are expected to be income-tax-free can become taxable to the employer. That changes the economics of the entire case.

This is why documentation discipline matters. Notice and consent must generally be completed before policy issue, eligible insured status must be confirmed, and reporting obligations such as IRS Form 8925 should be handled correctly. A COLI strategy is only as strong as its IRC 101(j) compliance foundation.

The Technical "Insider" Advantage

Technical expertise matters in COLI planning because design, tax treatment, and compliance are tightly connected. Our President, Matt Schiff, helped draft the very framework that governs this area. In 2003 and 2005, he served as a ranking member of the AALU's NQDC Committee alongside Michael Goldstein, helping shape the regulations surrounding IRC 409A and IRC 101(j).

That background gives Schiff Executive Benefits a practical understanding of how COLI should be structured, documented, and monitored. You can hear more of that perspective in Matt's interview with Dan Hogans (formerly of the IRS Treasury) on The Perfect Plan^® Podcast.

The Next Step

If you are evaluating COLI, the right starting point is a technical review of the objective, insured class, liability design, and compliance process. The structure should fit the business purpose, the accounting posture, and the long-term benefit obligation.

If you want to evaluate whether COLI fits your balance sheet and executive benefit strategy, use our RISR tool here to get an instant Business Valuation and start your journey toward The Perfect Plan^®.

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