Corporate-owned life insurance (COLI) is a policy a company buys on the lives of its key employees or owners — to protect the business, not to profit from tragedy.
It’s sometimes called company-owned life insurance and is designed to help a business recover financially if an executive, founder, or other essential team member dies unexpectedly. The company pays the premiums and is the policy’s beneficiary.
How does corporate-owned life insurance work?
With COLI, a company purchases life insurance on top executives, founders, or other high-value employees. The business owns the policy, pays the premiums, and receives the payout if that person dies.
The death benefit can help:
Replace lost profits
Pay off business loans
Cover the cost of hiring or training a replacement
Protect shareholders and investors from sudden financial disruption
COLI can also be used as part of executive compensation or succession planning for privately held companies.
Learn more >> Other types of life insurance
Types of corporate-owned life insurance
1. Key person life insurance
This is the most common form of corporate-owned coverage. It insures a key executive, founder, or employee whose skills or leadership are critical to the company’s success.
The business owns the policy and pays the premiums.
The company is the beneficiary and receives the death benefit.
Coverage can be term or permanent life insurance, depending on how long the company expects to need protection.
Learn more >> Take a deeper dive into key person insurance
2. Split-dollar life insurance
A split-dollar agreement is a hybrid between business protection and an employee benefit.
In this setup:
The employer and employee share the cost and benefits of a permanent life insurance policy.
The employer might pay premiums or own part of the policy.
The employee’s family may receive a portion of the death benefit or cash value.
Split-dollar life insurance is often used as part of an executive compensation package or to retain top leadership.
Learn more >> Take a deeper dive into split-dollar life insurance
Why is it sometimes called “dead peasant insurance”?
The nickname "dead peasant insurance" dates back to the 1980s and early 1990s, when large corporations — like Walmart and Winn-Dixie — took out life insurance on thousands of employees without their knowledge.
Those companies used the policies for tax breaks and profit protection, not to benefit families, which led to public outrage and lawsuits. Critics started calling these policies “dead peasant insurance” — a dark nod to the 19th-century novel Dead Souls, where a man tries to buy up the rights to deceased serfs.
Today, those practices are illegal, and modern corporate-owned policies must be fully transparent.
What’s changed since then?
The 2006 Pension Protection Act added strict rules for corporate-owned life insurance. [1] If your employer takes out a COLI policy today, they must:
Notify you in writing before the policy is issued
Get your written consent
Only insure employees in the top 35% of the company’s earners
Cannot penalize you for saying no
So, no — your employer can’t secretly insure you anymore. If you’re ever unsure, your HR or benefits department is required to confirm whether you’re covered under a company-owned policy.
Should business owners consider COLI?
If you’re a business owner, yes — in many cases. Corporate-owned life insurance can help your company stay afloat after the loss of a key person, fund buy-sell agreements, or even supplement executive benefits.
That said, it’s not a substitute for personal life insurance. A licensed Policygenius agent can help you find the right combination of business and personal coverage so both your company and your family are protected.
The bottom line
Corporate-owned life insurance gives businesses a financial cushion to recover from the unexpected. It’s a smart planning tool — when used ethically and transparently — that protects both the company and the people who help it grow.
And if you’re a business owner, it’s one more way to ensure the business you’ve built can thrive even if you’re not there to run it.
Ready to explore your options? Talk to a Policygenius expert — our agents don’t earn commissions, so you’ll get unbiased advice tailored to your business and budget.
