Company-Owned Life Insurance (COLI) vs Taxable Investments as a Nonqualified Retirement Program Financing Option
Company-Owned | Company-Owned | |||
Taxable Investments | Life Insurance (COLI) | |||
Financial Structure: | ||||
» | Ability to provide guaranteed minimum yield | Yes | Yes | |
» | Ability to provide guaranteed minimum death proceeds | No | Yes | |
» | Ability to match recorded asset value against recorded liability | No | Yes | |
» | Ability to finance supplemental survivor benefits | No | Yes | |
» | Enhanced death benefit in excess of account value | No | Yes | |
» | Professional money management available | Yes | Yes | |
» | Ability for tax-free exchange of life insurance policy | N/A | Yes | |
Company Income Tax Treatment: | ||||
» | Annual taxation of capital gains | Yes | No | |
» | Annual taxation of interest | Yes | No | |
» | Annual taxation of dividends | Yes | No | |
» | Annual taxation of unrealized gains | No | No | |
» | Tax on net gain at liquidation | Yes | Yes, only if policy surrendered | |
» | Ability to borrow from account | Maybe | Yes | |
» | Ability to borrow with little or no interest spread | Maybe | Yes | |
» | Tax on net gain at death | Yes, if funds liquidated | No | |
» | Tax-free death proceeds | N/A | Yes | |
Accounting Treatment: | ||||
» | GAAP accounting treatment | FASB ASC 320-10 | FASB ASC 325-30 | |
» | Annual recognition of unrealized gains/growth | No | Yes | |
» | Unrealized gains/losses recorded as credit/charge to earnings | No | Yes | |
» | Recorded gains subject to tax provision | Yes | No | |