NU Online News Service, Feb. 3, 2004, 2:13 p.m. EST, Washington – The life insurance industry is praising the Senate Finance Committee’s vote in favor of a corporate-owned life insurance measure.[@@]
The measure addresses allegations of abuse of COLI while allowing use of COLI to protect an employer against the loss of employees.
Frank Keating, president of the American Council of Life Insurers, Washington, says the COLI language ensures the continued viability of the product.
“The committee got it right in tying COLI coverage to employee consent and in requiring employers to make covered employees aware that coverage can extend post-employment,” he says.
The COLI legislation is not perfect, but it represents a compromise that the agent community can support, says David Woods, chief executive officer of the National Association of Insurance and Financial Advisors, Falls Church, Va.
Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, notes that thousands of insurance jobs are connected to COLI and that COLI is an important factor in providing employee benefits.
Under the terms of the legislation, the death benefits on COLI policies covering rank-and-file employees who die more than 1 year after leaving employment would be taxed.
The death benefits on COLI policies covering highly compensated employees?defined as those earning at least $90,000 a year or in the top 35% of an employer’s compensation schedule?would continue to be tax-free, subject to certain conditions.
To get tax-free benefits, the employer would have to obtain written consent from the covered employees and notify the employees that the coverage might continue after they leave employment.
In addition, employers must provide information about their COLI plans to the Internal Revenue Service.