In today’s dynamic business environment, proactive planning is essential to preserve and protect the longevity of a company—especially when that success hinges on key individuals. One of the most strategic tools available to business owners is Corporate-Owned Life Insurance (COLI).
At Ayanna Financials, we help business leaders integrate COLI into a holistic financial and business continuity plan that protects not only the bottom line but also the vision and legacy of your enterprise.
What is Corporate-Owned Life Insurance (COLI)?
COLI is a type of life insurance policy that a company purchases on the lives of key employees, such as founders, executives, or high-impact personnel. The business is both the owner and beneficiary of the policy, and uses it to mitigate the financial risk of losing an indispensable team member.
COLI provides the company with a tax-free death benefit that can be used to:
- Recruit or transition a successor
- Maintain cash flow and operations
- Repay debt or loans triggered by the employee’s death
- Provide severance or wind-down costs if needed
- Sustain investor confidence and avoid business disruption
Who is Considered a Key Person?
A “key person” is anyone whose absence would significantly impair the company’s operations, revenue, or strategic direction. This includes individuals whose:
- Name or reputation is intrinsically tied to the company brand (e.g., Steve Jobs at Apple)
- Technical or leadership role is vital to current or future projects
- Departure could negatively impact lending terms or investor confidence
- Loss would lead to a measurable decline in customer or client relationships
How COLI Supports Succession Planning
In the event of a premature death, the policy’s death benefit provides the business with immediate liquidity to implement a succession plan without compromising operations or value. Whether replacing a visionary CEO, buying out an ownership interest, or stabilizing the business financially, COLI acts as a financial bridge during a time of uncertainty.
COLI and Buy-Sell Agreements
A well-structured buy-sell agreement is critical to protecting ownership integrity. COLI can be used to fund this agreement, especially in partnerships or closely-held businesses. Each owner is insured under a whole or term life policy owned by the company. Upon the death of one owner, the death benefit allows the surviving partner(s) to purchase the deceased owner’s share from their estate—ensuring smooth transition and minimizing external interference.
COLI-funded buy-sell agreements are also adaptable for other exit events, such as:
- Illness or disability
- Retirement
- Unexpected departure
In these cases, the policy’s cash value can be accessed tax-free and reallocated to fund buyouts or operational costs.
Potential Tax Advantages of COLI
COLI policies offer multiple tax benefits that enhance their financial appeal:
- Tax-deferred cash value growth: The cash value of a whole-life COLI policy grows tax-deferred.
- Tax-free death benefits: Proceeds from the policy are typically paid to the business income-tax free.
- Loan collateralization and liquidity: The policy’s cash value may be used as collateral or tapped to improve company liquidity, under certain conditions.
- Executive compensation planning: Some businesses use COLI to structure supplemental executive retirement plans (SERPs), aligning retention with tax efficiency.
A Holistic Financial Strategy
COLI is not just an insurance product—it’s a strategic asset. When properly designed, it can serve as:
- A continuity safeguard
- A succession funding vehicle
- A retirement planning component
- A corporate financial reserve
At Ayanna Financials, we view COLI as part of your broader business risk management and financial planning ecosystem. Our team will conduct a detailed assessment of your company’s structure, key personnel, and long-term objectives to recommend a customized COLI solution that protects your business and maximizes value.
Secure Your Legacy with Confidence
Uncertainty is the enemy of growth. Whether you’re building a business to pass down or preparing for unexpected turns, COLI ensures your vision doesn’t die with a key individual. Let Ayanna Financials help you safeguard your company’s future with smart, strategic planning.
Contact us today to schedule a consultation and explore how Corporate-Owned Life Insurance can support your business continuity and succession goals.
