Understanding Corporate Owned Life Insurance

Understanding Corporate Owned Life Insurance

If you are just starting to look at the different life insurance options available to you, it can be quite confusing. Throughout Canada, you will find a host of different choices, and knowing which one to choose can be almost impossible until you’ve done more research. A rather different type of life insurance is one that the company for which you work might take out on you.

The company or corporation where you work owns corporate owned life insurance, also called COLI. They buy the insurance policy for some or, in a few cases, all of their employees. One of the most common practices is for the company to take out insurance policies on their most valuable employees because they know that these individuals are a very important part of their business. If one of the most important members of the staff were to pass away, it would not only take time to replace that member, but it could also cost quite a bit of money.

When you factor in the training costs and the hiring costs, replacing an executive can be devastating for a company. Another thing that the company has to consider is how many shares of the company that employee owned. Trying to recoup the loss adds even more of an expense. The corporate owned life insurance helps to ease that burden.

This practice is not without its detractors though. A stigma has developed around COLI because some companies were taking advantage of the situation by insuring a large number of employees, whether they were key figures in the company or not. They would buy the cheapest of the insurance plans and the payouts were minimal. However, it did allow the interest to accumulate and actually be profitable for the business! These were in the past though, and companies aren’t able to do this today. Thus, corporate owned life insurance, when employed properly, is still a good option for many companies.

If you own a business and COLI interests you, make sure that you only insure those who are actually key members of your staff. You can find some good deals for Ontario based companies, and it always helps to have your accountants or legal counsel help you determine the best option for your insurance needs. COLI isn’t right for all companies, but many have found that it can be very beneficial to them when they face the death of an executive.

Please feel free to contact Aman Kapur at www.youinsuranceguy.ca or by phone 1-416-509-2540 to assist with the plan of your choice. Or simply click here to request a quote.

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