Also known as 'Dead Peasant Insurance," we last considered corporate Owned Life Insurance (COLI) plans almost 5 years ago, when we reported on their (apparent) demise. It seems, though, that George Romero must have been a life insurance mogul, because COLI plans are back in the news:
"Some state insurance regulators are looking into the idea of allowing tax-free exchanges of corporate-owned life insurance policies"
The problem arose out of the solution. That is, just because one couldn't sell new COLI plans, old ones didn't just fade quietly away. They stayed on the books (generating premiums and claims), but with little incentive to do much else with them. Some companies, looking at the cash values of these plans, recognized a treasure-trove of cash sitting idly by. In fact, some of these plans were beginning to self-destruct, as the internal costs ate up the cash build-up.
What to do?
One alternative is to roll the existing, poorly-performing policy into a new, presumably better-performing one. The problem is that old standby, "insurable interest." In this case, it's a legitimate concern, "because a COLI policy may insure former employees as well as current employees, and the employer may have difficulty re-establishing insurable interest on all lives covered by a COLI policy."
Not to mention medical insurability issues, but that's not addressed in the article.
So far, it's all talk, but we'll keep an eye out for any resolution (and any zombie life policies).
"Some state insurance regulators are looking into the idea of allowing tax-free exchanges of corporate-owned life insurance policies"
The problem arose out of the solution. That is, just because one couldn't sell new COLI plans, old ones didn't just fade quietly away. They stayed on the books (generating premiums and claims), but with little incentive to do much else with them. Some companies, looking at the cash values of these plans, recognized a treasure-trove of cash sitting idly by. In fact, some of these plans were beginning to self-destruct, as the internal costs ate up the cash build-up.
What to do?
One alternative is to roll the existing, poorly-performing policy into a new, presumably better-performing one. The problem is that old standby, "insurable interest." In this case, it's a legitimate concern, "because a COLI policy may insure former employees as well as current employees, and the employer may have difficulty re-establishing insurable interest on all lives covered by a COLI policy."
Not to mention medical insurability issues, but that's not addressed in the article.
So far, it's all talk, but we'll keep an eye out for any resolution (and any zombie life policies).
Posts
