Implement a strategic tool to support key people while generating earnings, surplus and financial strength.
Insurance company-owned life insurance, often abbreviated as ICOLI, is a type of life insurance arrangement where the insurance company is the purchaser, beneficiary and owner of life insurance policies placed on key executives. When it comes to addressing immediate and future financial obligations, ICOLI is a means to leverage and maximize a company’s overall financial position. Insurance companies are always on the lookout for investments that focus on generating improved earnings, surplus and financial strength.
ICOLI is a viable alternative asset and can offer multiple benefits for insurance companies, whether a life and health or property and casualty provider. Investing in an insurance company-owned life insurance policy has the potential to provide many solutions. The money earnings from ICOLI depend upon a diversified investment portfolio managed by either the insurance company or the insurance company’s outside investment advisor. The benefits of insurance company-owned life insurance include:
- Certain tax preferences: Investment gains are tax-deferred or tax-free if the ICOLI is held until the insured's death. An insurance company-owned life insurance policy also offers protection of capital via tax-free death benefits and does not create a tax deferred liability.
- Key person compensation plans: ICOLI allows you to keep your balance sheet in good shape while letting your organization offset the cost of the executive benefits necessary to attract and retain the type of leadership needed to help your company succeed.
- Funding for certain employee benefits: ICOLI is also an attractive and tax-efficient option to help offset the aggregate costs of employee benefit plans.
- Risk capital charge favorability: There are greatly reduced reserve requirements for the ICOLI purchaser compared to other non-life insurance investments with similar return profiles.
- Maturity value leverage: The maturity value can increase and total profit can increase along with it. Based on the investment portfolio supporting the ICOLI policy (either the issuing insurance company’s general account or the purchaser’s investment portfolio/separate accounts) the asset value can accumulate to such an extent that the insurance company must increase the maturity value to stay in compliance with federal tax law.
- Asset diversification: Separate account investment offerings within a policy are critical to the ICOLI process. ICOLI offers a wide range of variable investment options managed by qualified investment managers. These choices allow an insurance company to create an asset allocation strategy within ICOLI that reflects its overall investment policy.
In summary, ICOLI offers the purchasing insurer multiple benefits besides being a key person enterprise risk management tool or offset to (and cost recovery against) employee benefit and compensation programs:
- This asset delivers three to four times (or more) value against the initial purchase price, unlike any other investment.
- It’s a guaranteed profit with potential for higher profit, and market fluctuations may be eliminated or greatly reduced based upon product purchased or utilization of stable value wraps.
- ICOLI is income tax-free if purchased and managed in accordance with federal tax law.
NFP’s relationships with the universe of ICOLI issuing carriers gives prospective clients access to in-depth analysis of product choice, design, costs, asset optimization and the supporting due diligence needed for the successful implementation of an insurance company-owned life insurance program. After initial design and implementation, NFP provides best-in-class administrative services, and necessary accounting and regulatory reporting. The long-term nature of an ICOLI purchase means working with a steady company with deep infrastructure, as NFP maintains, is critically important for long-term success as future obligations and risks associated with the enterprise and employees continue to evolve.