Corporate-Owned Life Insurance (COLI)

A life insurance policy purchased by a corporation on the life of a key individual, where the corporation pays the premiums and is the beneficiary. It is used to provide a financial safety net for business continuity, to fund buy-sell agreements among shareholders, and — with a whole-life policy — to accumulate cash value on a tax-deferred basis. On the death of the insured, the death benefit received by the corporation, less the policy's adjusted cost basis, can be credited to the corporation's Capital Dividend Account and distributed tax-free to shareholders.