Corporate owned life insurance, COLI or employer owned life insurance, EOLI can be used for death benefits but it’s not always the case. A lot of the time it’s actually carried by a company and is used to reimburse said company upon the death of the employer.

The reason for the policy purchase is to be able to defray some of the potential costs of losing someone that is a high ranking core person that is vital to the continuation of the company. The loss of an owner or partners or other key personnel are losses that can cost a lot of money and result in other unexpected expenses that lead to even more loss of money. By the purchase of the corporate owned life insurance policy the company is able to recoup some losses and put temporary measures in place through the life insurance benefit.

In the past there were some loopholes within the ability for companies to purchase life insurance policies on their employees. One of the best examples of this is that of Wal-Mart which was notorious for purchasing policies on their low income employees and collecting the benefits when they died.

Now that the loophole has been closed there are many companies that did have legitimate reasons to hold a policy to stop taking them out due to the potential tax problems. With the new laws the employee must be notified of the policy and the company is not entitled to any survivor benefits with minimal exclusions for very high earning employees.

Even with all of the problems with some of the new laws there still are some very important reasons for policies like this to be taken out. Weighed with the possible problems with the benefits that the policy would provide should they lose that employee must be weighed carefully.