Business Solutions
Business Solutions Tailored To Your Needs
RBI Capital Group offers a wide range of business solutions tailored to your specific business needs.
Corporate-Owned Life Insurance (COLI)
Corporate-Owned Life Insurance
Corporate-owned life insurance (COLI) is a life insurance policy that a company owns, rather than an individual. It is purchased by the company on the lives of its employees.
In a COLI arrangement, the company acts as both the policyholder and the beneficiary. The company pays the premiums and collects the death benefit when an insured employee passes away, in contrast to individual life insurance, where the employee and their family are the policyholder and beneficiary.
Typically, a company purchases COLI to insure the life of a key employee, executive, or business owner. If the insured person dies, the company, as the primary beneficiary, receives the death benefit. This payout is often used to help mitigate the financial impact of losing an important member of the organization.
Corporate-Owned Life Insurance (COLI), also known as company-owned life insurance, offers several key benefits for businesses, making it a valuable financial tool:
Key Person Protection: COLI provides financial support when a key employee passes away. The death benefit can help cover lost revenue, recruit and train a replacement, and stabilize the company during a challenging transition.
Funding Buy-Sell Agreements: COLI can be used to fund buy-sell agreements, ensuring that the surviving business owners have the necessary funds to buy out the deceased owner’s shares. This prevents ownership disputes and helps maintain business continuity.
Offsetting Deferred Compensation Costs: COLI can help offset the costs associated with deferred compensation for key executives. The death benefit can be used to fund the company’s deferred compensation liability, offering a cost-effective way to provide valuable benefits.
Business Debt Protection & Growth Capital: In addition to its traditional uses, COLI can be utilized to protect the company against business debt. The accumulated cash value within the policy can be accessed through tax-free loans or withdrawals, providing a flexible source of capital to pay off debts, finance business growth, or seize new investment opportunities. This dual benefit of protecting against liabilities while fueling growth makes COLI an attractive financial instrument for companies aiming for long-term stability and expansion.
COLI Tax Benefits
One of the main reasons businesses opt for corporate-owned life insurance (COLI) is its tax advantages. Here’s how COLI can provide financial benefits for your business:
Tax-Deferred Cash Value Growth: Many COLI policies accumulate cash value over time, and this growth is tax-deferred. This means the company does not have to pay taxes on any gains while the policy remains in effect, making COLI an efficient tool for managing excess cash in a tax-friendly manner.
Tax-Free Death Benefits: In most cases, the death benefit paid to the company upon the insured’s death is tax-free. This provides the company with substantial funds without the tax burden, which is crucial for managing the financial impact of losing a key employee.
Business Expense Deductions: Although premiums for COLI policies are generally not tax-deductible, the tax-free death benefits and the tax-deferred cash value growth make it an appealing option for companies looking to optimize their financial strategy.
Tax-Free Loans: Under section 7702 of the Internal Revenue Code (IRC), a company can borrow against the cash value of its COLI policy through tax-free loans. These loans are not considered taxable income, and they offer the business a flexible source of funds without triggering an immediate tax liability. The loan is repaid from the policy’s death benefit or through other company resources. Additionally, the amount that is loaned out continues to earn compound interest as if it were still in the policy, further enhancing the policy’s growth potential.
This loan provision makes COLI an attractive option for businesses seeking liquidity. The company can access cash when needed—whether for capital investments, operational expenses, or other business needs—without incurring taxes on the loan proceeds. However, it’s important to note that any unpaid loans, plus interest, will be deducted from the policy’s death benefit if not repaid before the insured employee’s death.
For these reasons, COLI is often incorporated into a broader tax strategy that helps businesses reduce their tax liability while securing long-term financial protection.
Premium Financing
Insurance premium financing is a way to pay for life insurance premiums by borrowing money. There are a number of benefits to this, including:
- Eliminating the need for large up-front premium payments.
- Keeping your own capital invested in other assets.
- Avoiding the high cost of paying premiums with after-tax dollars.
Premium financing is an effective strategy used by many types of purchasers, such as high net worth individuals, entrepreneurs, corporations, trust and business owners. Financing the majority of the upfront cost of an insurance policy ensures that business owners do not need to cash in or sell their assets to pay for the entire cost of the insurance policy upfront. This means that the business can enjoy the protection of the insurance policy without having to negatively impact their cash flow or assets.
Why Choose Insurance Premium Financing?
The most common reason this financing option is so popular is because it allows businesses to attain a large amount of insurance without having to significantly impact their cash flow or liquidate their investments to cover the expense.
Business owners are able to maintain the use of their cash flow and use it for operations or to grow the business. Premium Financing allows business owners to attain the insurance coverage they need while keeping their assets intact.
You finance your home, cars, boats, planes, and more. You can also finance your life insurance. Life insurance premium finance can be the ideal solution for high-income professionals, and or corporations who appreciate the benefits of life insurance but prefer not to use current income and wealth to pay for it.
- Maintain assets and investment portfolios.
- Borrow at competitive interest rates.
- Minimize out-of-pocket costs.
- Use a variety of assets for collateral.
- The cash value of the life insurance policy, over time, can completely collateralize the loan.
And enjoy unique tax advantages and security. Tax-free income for life. Guarantees not available with other investments. Stock market participation without downside risks. Tax-free death benefits.
Key Person Insurance
Key person insurance is an arrangement where a business purchases life insurance on the life of a key employee to help the company survive financially if something happens to that key employee. The key person policy can either be term insurance or permanent insurance, depending on the goal.
Key Person Insurance Benefits
When the untimely death of a key person happens, key person insurance will help ensure that the company can survive and maintain business operations. The policy will help cover expenses which could have potentially been lost due to the death of the key person. The coverage can help businesses with the following:
- Replacing The Key Person
- Paying Investors
- Paying Business Debts
- Properly Closing The Business
A key person is anyone in the business who is critical to the success of overall business operations. Looking at your staff and determining whether or not the business could function without their presence is the ideal way of deciding who should have a key person insurance policy.
