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All insurance products are governed by the terms in the applicable insurance policy, and all related decisions such as approval for coverage, premiums, commissions and fees and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Most people purchase a life insurance policy for themselves to financially support loved ones after their death. However, it is also possible for organizations to purchase life insurance for their employees, which is called dead peasant life insurance or corporate-owned life insurance.
Dead peasant life insurance is highly controversial, yet many companies have this type of policy for tax or revenue purposes. Some businesses may opt to use it for more than tax or revenue benefits. It is also argued that it can help businesses cover the cost of hiring and training an executive in the event of their death, as well as provide funding for certain employee benefit plans.
Corporate-owned life insurance is a special type of life insurance that employers take out on their employees. Corporate-owned life insurance can be written on one employee or an entire workforce.
Company-owned life insurance was originally designed to help businesses stay afloat financially after high-ranking executives passed away. Today, companies will typically purchase corporate-owned life insurance to fund employee benefit plans, such as non-qualified executive health plans and deferred compensation plans.
There are several tax advantages because cash value growth and death benefit payouts do not count toward annual revenue. There are two different types of corporate-owned life insurance — key person and split-dollar:. Corporate-owned life insurance is not the same thing as group life insurance , which is offered to employees as part of their employment benefits.
With most group life insurance policies, the employee pays the premiums and chooses their beneficiaries to receive the full death benefit. Company-owned life insurance is commonly referred to as dead peasant life insurance because of its historical use. In the s, many major corporations began purchasing corporate-owned life insurance on low-wage workers without telling them. The lead character buys dead serfs from a landowner in the book and uses them to secure a high-value loan.
Despite the controversy, dead peasant life insurance is legal, but highly regulated. In , the Internal Revenue Service IRS instituted the Pension Protection Act , which created a strict set of guidelines that made it more difficult for companies to exploit their employees with a corporate-owned life insurance policy.
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Best checking accounts. Best CD rates. Best money-market accounts. Your Money. Personal Finance. Your Practice. Popular Courses. Insurance Life Insurance. Key Takeaways Corporate ownership of life insurance COLI refers to insurance obtained and owned by a company on its employees, typically senior-level executives.
Companies pay the premiums and receive the death benefit if the employee dies. The insured employee's heirs or family do not receive any benefits. A major reason that companies purchase COLI is to profit from the tax advantages of life insurance. Corporate-owned life insurance is sometimes referred to as "dead peasant insurance" because of companies that took out policies on low-level employees without their knowledge or consent.
Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Related Terms Bank-Owned Life Insurance BOLI Bank-owned life insurance is a type of life insurance bought by banks as a tax shelter, leveraging tax-free savings provisions to fund employee benefits.
Company-Owned Life Insurance COLI Company-owned life insurance is a type of policy that companies purchase to insure against the death of one or more employees. Transfer-For-Value Rule Definition Transfer-for-value rule states that if a life insurance policy is transferred for something of value, the death benefit is partly taxable as income.
Term Life Insurance: Uses, Types, Benefits, and More Term life insurance is a type of life insurance that guarantees payment of a death benefit during a specified time period. Stranger-Owned Life Insurance STOLI Stranger-owned life insurance is an arrangement in which an investor holds a life insurance policy without any insurable interest in the insured.
Reading Into Nonqualified Plans A nonqualified plan is a tax-deferred, employer-sponsored retirement plan that falls outside of Employee Retirement Income Security Act guidelines.
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