What is company-owned life insurance (COLI)?
COLI refers to Company-Owned Life Insurance. This is coverage taken out on a group of key employees. If one of them should die, it pays out to either the employer or the employee’s families.
Company-Owned Life Insurance (COLI) makes sense for businesses for a lot of reasons – not the least of which is covering the costs related to replacing a key employee.
Watch the video now and get answers to your questions about this critical type of life insurance coverage – and drive your life insurance sales goals.
After the video, keep reading for more information about company-owned life insurance.
Company-Owned Life Insurance
DAVE - If you're an insurance agent or an insurance broker you probably have heard the term COLI. It stands for Corporate-Owned Life Insurance, however, you probably think, “Well, that's not my market! That's for big, giant companies, Fortune 500 companies and that's not where I sell.”
But the fact of the matter is, I don't think of it as corporate-owned life insurance. I think of it as company-owned life insurance. And if you work with business owners, there's a pretty good
chance you have opportunities to work in the COLI marketplace.
And that's what we're going to help you accomplish today.
My name is Dave Donchey, and I’m with Leisure Werden and Terry. Thank you so much for joining. It means a lot to us. Also joining me today is our special guest speaker, Dennis Little, who is our Vice President of Sales for Global Atlantic. He's a COLI expert.
We're going to go through – in 20 minutes or so – everything you need to know to recognize that COLI is a market that you can actually work in.
Let's talk a little bit about Global Atlantic and the COLI marketplace.
DENNIS - Dave did a very good introduction about our space and, certainly, our platform, so
obviously what we want to talk about today is really an old concept but we've put a new face on it.
You're going to see a deck right now that we're gonna kind of fly through. I'll do it very quickly
and I'll do it quickly because you have complete access to this presentation and Dave can get that to you upon request.
This is for producers only and if I was sitting in front of one person or if I was doing a presentation in front of 200 people, I would be using the same deck.
Let's talk about the new face that we put on this.
COLI is company-owned. We're trying to change the idea that this is not just corporate-owned – it's any business owning life insurance on an owner or an employee. It doesn't matter about size or entity type.
Any business can own our platform product.
We do have guaranteed-issue and simplified-issue. We do have full underwriting. We're doing a whole lot more full underwriting than we ever thought we would and we will talk in more detail about that.
The guaranteed-issue program: guaranteed is owned by the company, usually, as a rule, paid for by the company. It's 10 lives minimum. For guaranteed issue, the company obviously must be formed for a legitimate business purpose.
It's employer-employee relationship. We are doing management executives owners, and top hat only. What this allows us to do, as a result of our product being 100% reinsured up to $4 million, this allows us a little bit more – I'll use the phrase “institutional pricing.”
You can see that the minimum annual income is $75,000. We don't do any rank and file and again that comes back to top hat and the COI rates that we have. No associations, unions, charities, pensions, or churches.
DAVE- Before we go to the next slide, just to confirm, we can get up to almost $4 million of death benefit, correct?
DENNIS- We can get up to $4 million and I do have another slide that talks about that. We do have a little bit more wiggle room for, let's say, the patriarchs of the company. And once we get up to that size, it takes 65 or 66 participants to get up to that, as far as the multiple and we'll talk about that in just a moment.
We get up to $4 million guaranteed issue, again 10 lives, more simplified is 5 or more, our weighted average as far as age is, we've got to have a weighted average 55 or less, $4 million max.
As I just said, we have a little wiggle room to get above that and that's on reinsure review, no backdating to save age, no known impairments.
And I get the question a lot about what does “no known impairments” mean? If it's guaranteed insurability, what we really do expect here is your professional field underwriting at the point of sale, just like we would with any other case that would not be GI.
So, obviously, it is guaranteed insurability but it would be our hope that we would not get any known impairments getting into that guaranteed insurability pool.
Full underwriting is also available and we'll talk in more detail about that.
Here are the multiples you're going to see. You can see in a GI situation if you've got 10 to 19 lives. If it's employee-owned, you can go to, at times, 25,000. If it's employer-owned, which 95%, if not hired, GI cases are employee-owned unless they're traditional Section 162 Executive bonus type of plan that we will allow the executives to own that. But you see the multiple.
If you've got 10 lives death benefits going to be for 50-plus lives, the multiple is going to be times 60 and that's why I said earlier it takes up to 65 or 66. Do the math to get to our $4 million. And that would be on every life, so those are the multiples for numbers of lives.
DAVE- So basically, if you had an employer who's going to own the contract and they had 10 employees, we're talking about a $300,000 death benefit, correct?
DENNIS- That is correct. The key there, Dave, is that though we see a few DBO plans, primarily this program is built for non-qualified, deferred compensation. And always remember the three R's: recruit, retain, reward. We'll talk a little bit more about that, but we're looking to accumulate cash and reward with an exit strategy on the back end so that's why we keep the death benefit as low as possible based on net free.
The simplified issues there, ages 18 to 60 is $750. We do allow increases based on salary increases that we do have a detailed explanation and details about that. Sixty-one to 70 is $300,000, etc.
The product itself, the COLI space for forever, has been primarily variable life insurance. This is the very first IUL and, as far as we know, the only IUL that has been built exclusively for the COLI marketplace.
Now, there are a lot of carriers out there – including ourselves – that used to do this where we had a nice little IUL, very competitive in the marketplace, slap an ECV on it and we are in the COLI space.
We did that ourselves, but, again, we've created this product with more of an institutional approach towards the COLI space as an IUL and it performs significantly better. It’s built to be a true, exclusive COLI product.
I'm not going to talk about lifetime builder, it's another IUL we have that has the guarantees that you would see, it's just kind of looking at the primary differences between our benefit builder and lifetime builder.
The minimum face is $100,000. You see the issue ages are a little bit higher down here and that's based on full underwriting. That's why you'll see it going up to age 85.
DAVE- One thing I want to point out to the producers if you're not familiar with Indexed Universal Life, which we also call IUL. Any of the LWT sales associates can walk you through how Index Universal Life works. It's a very very popular permanent life product and most companies are offering a product, but this particular one with Global Atlantic is an excellent cash
accumulation product and we can explain how that works.
You mentioned an ECV rider. It stands for Early Cash Value rider.
DENNIS- Speaking of ECV, new riders: Business Asset Enhancement rider. The reason
we've changed the name from Early Cash Value – and basically, what Early Cash Value riders mean is that, let's say that your client pays $100,000 in premium and most ECV riders for two, three, four, even some as many as five years, will guarantee a return of premium if they have to quit.
it's an Early Cash Value rider. Now, there's going to be some chargebacks to the producer if they quit but, getting beyond that for just a moment as an explanation, Early Cash Value riders
guaranteed by contract.
The reason we call it Business Asset Enhancement is because the return of premium can
actually participate in the S&P 500.
For example, $100,000 premium, the S&P 500 does 103%. Your client comes to you and says, “Hey, Dave, we can't afford this anymore. The business has taken a turn, we really need to cancel this,” we'll give them back $100,000. But if the S&P did 106%, anything over 105% or 5% return on the S&P.
For example, a 6% return and they have to quit, we're going to give back 101%. If the S&P does 7% and they have to quit we're going to give them back 102%.
So, that's our guarantee. Well, let me rephrase that. We have a 100% guarantee. The enhancement is based on S&P performance.
In addition, our Business Asset Enhancement rider is a seven-year guarantee. There's nothing
like this in the industry today. This is not available on employee-owned cases. We also have a new Premium Deposit Fund.
The Premium Deposit Fund currently has a guarantee of 1%. It's
Currently crediting 2.5%. We're getting a lot of play here by businesses that are sitting on the fence, have that $2-, 3-, 4-, $500,000, $1 million sitting on the fence.
Sure, we get involved in the equity space? Should we not? They're coming to this Premium Deposit Fund, putting $500,000 in there and then we'll put the premium into the product over
the next five years. I'll talk about that at the end.
New feature: 11-month strategy. For those of you that really know about IUL, the biggest problem with value is when that first annual report says zero. Well, it says zero because
it hasn't actually got a one-year point-to-point yet. What we do is an 11-months, so if we have a January 1st policy date, we don't get involved in the strategy – the one-year point-to-point or
the 11-month strategy – until the 11th of January. On the 12th of December, based on 11-months and assuming that the S&P has had a positive effect, we're going to credit that at the end of the 11th month and then we have a 12-month rolling point-to-point from that point forward.
When the annual report comes out December 31st, it's going to see those at
that 11-month book of crediting. There are a lot of carriers that are currently looking at this. I was just with Penn Mutual in a meeting the other day. They may have already done it or they're thinking about it, but it's a very, very popular feature with CEOs and CFOs and is in terms of seeing actual gains on their annual report the first year.
DAVE- Terrific feature and every company should do it.
DENNIS- Wellness rider. I'm not going to go over the riders in a lot of detail. We have a Wellness rider. If you go to the doctor every two years, we don't really care what the results of that physical exam are, but if you go every two years and get a physical exam, we're going to give you a break. Anywhere from a twenty-five to fifty- fifth break on the cost of your COIs times the amount of years the policy has been in force. So, if we're currently guaranteeing 25 basis points but actually doing 50 basis points. You've had it 10 years, we're going to give you a 5% discount on your CIOs. Twenty years, we're going to give you a 10% discount on your CIOs.
So, the Wellness rider we've had in force for 11 years and we're seeing a lot of positive results and happy endings on what this rider is actually doing. We have the bike premium monthly deduction, terminal illness, etc.
DAVE- I just want to comment on the Wellness rider. Those are real dollars as you start to get nice discounts off of the cost of insurance charges. Those are real dollars that matter when a client looks at their account balance, so I love that feature.
DENNIS- Compensation. I never talk about compensation percentages, but you should all know that we do have four different compensation options. if you don't use our GRR SIGI and don't use the ECB rider, it's going to pay a pretty normal compensation that you would be used to on any other product that you might sell. Once you get involved in the SI/GI and the ECV rider, you're going to have a semi-heat, more of a traditional method for COLI business.
You can also have a levelized that pays out over a ten-year period of time and then ultimately you can also choose a trail, where we see in trail options and uses $35 million of variable rollover. The trail, obviously, is on cash accumulation. They don't come along very often, but when they do, maybe the trail kicks in in the 8th year and pays for 35 years.
Certainly, something to think about.
This is on a case-by-case basis. You choose at the time of the case, so whichever one is
going to work best for you at that time, that's the one you can choose. You're not locked into any one of these compensations.
We go outside for all of our colleague administration. We're using the info system Extinguish. They've been doing it for many, many years. They're one of the most experienced co-lead product administration groups in the industry today and that's who we use for our policy administration.
We do not do planned administration. “We have no dog in that hunt” is a phrase I like to use. You can go to any TPA that you want to use.
DAVE- If a producer has not done a COLI product sale or doesn't use a TPA, they're just not sure, wouldn't they just default to using McCamish because it's kind of built-in relationship with Global?
DENNIS- Absolutely. That's a good point. We have two attorneys in our COLI division that have in excess of 50 years of combined experience. The genetleman who built this program and
product for us is probably one of the best design guys in this space today and you have full access to our team.
We have no case size limits. Our lowest is one length. Currently, we’re right at about 610 lives with another one. We have mass change capabilities for whether it's 11 lives or 1,000 lives.
The mass change capability is no more than pushing a button with our new software and, of
course, our 2018, we already have our agent portal in place, so you have full access to your clients.
Great Insurance Technologies built our special software for us. You have complete access to that through the agent portal. I will say that you have the ability to do 10 lives or more with this insurance technology software. Anything under 10 lives or more you can do, but you will not be able to use an ECV rider.
ECV is not something that we're going to put up on the billboard. We still say it's got to be at least 10 lives. We have had a couple of examples or exceptions where we've had five, six, seven a life case, I'll be able to use it all, so just keep it in mind on a case-by-case
DAVE- Basically, if you have a very small group, let's say one, two, three, or four lives, you're not going to allow the Early Cash Value rider in that product design, correct?
DENNIS- If you asked for that design, I'm going to give you those four illustrations. One of them will have the ECV rider, and the other one will not. And we do, again, on a
case-by-case basis, tell us about the corporation or the business or the partnership. How long has it been a business? How are they doing this? Is it a new startup or something like that? We
will consider allowing those smaller groups to use the ECV on a case-by-case basis. So, it is open for discussion.
We're seeing a real increased interest in creative benefit plans. Again, we're trying to get the word around the country with our company-owned life insurance, and, as I go around the country, I talk, I see COLI. As soon as I sit down, people say, “Dennis, we're not in a COLI business.” It's the first objection that I get as I go to agencies around the country: “I'm not in the COLI business.” and I simply say, “Do you do business with businesses?” “Yes.”
“Do you do buy/sell business?” “Yes, I do.”
“Do you do Key man business?” “Yes, I do.”
“Do you do any type of business succession planning for your business?” “Yes, I do.”
“Then I would suggest to you that you are indeed in the COLI business.”
We're seeing many executives showing an increased interest in deferring their salary, their bonus, or even more companies – both large and small – they want to move the potential equity volatility. That's what I said earlier about the variable life that's coming to a more zero-is-my-hero/guarantee zeroes the floor.
We talked about the Premium Deposit Fund. Most companies are cash-rich. They're looking for more of a conservative opportunity and that's where we're using our Premium Deposit Fund to bring some of those larger funds in and then feed non-MEC premiums in and, of course, we're
seeing more fully underwritten cases than expected.
I'll leave with this: Why are we seeing this? I would suggest to you that Dave Donchey owns the
company, Victor Paz is on his left hand, Dennis Little is on his right hand and we have 24 individuals out in the factory making widgets. We have a 401k plan in place where Dave Donchey (the company) is matching 4%. Everybody out in that Factory is as happy as they can possibly be with that program. But Victor, Dave, and Dennis are all maxed out on our 401k contributions. What do we do? The business has been good the last two or three or four years. Dave's got extra money left in the corporate coffers – $2-, $3-, $4-, $500,000.
He wants to do something for Victor, wants to do something for Dennis and wants to do something for Dick. Recruit, retain, reward.
And that's where we're seeing a whole lot more business than we were. We’re still seeing the big cases but we're seeing a whole lot more of those onesies, twosies, threes than we
ever thought we would see. We even had to go back to McCamish after the fact and have them build new modules in order to administrate the ones who do the threesies.
Don't overlook that space, this product. The only place that will allow this product to be sold is in that company-owned company page in space. A lot of food for thought.
DAVE- If we did have an employer-owned case, how are they going to get that money into the
DENNIS: They're going to do it on the back-end. If you know the company owns the policy, the company owns the cash value on the back-end, whatever the non-qualified deferred comp agreement might be.
Whether it's age 60, whether it's ten years of service, whether it's age 65 – this is what we agree that we're going to pay you and that's what non-qualified deferred comp is all about – especially the COLI – is funding that unfunded obligation.
Say Dave has entered into an agreement with Dennis. But, hey you stay around and you continue to work for me and here’s what you're gonna have on the back-end.
How do you get it into Dennis's hands? You're gonna make a policy loan from the policy. You're gonna pay it out to me as income. It's income to Dennis and it's tax-deductible to you on the back-end as income paid out. So that's how you're going to get it to the executive.
DENNIS- It's a very, very effective way of keeping people tied to a business, the people that are important. I know a lot of our producers have these types of business owners where they're already working in those markets, as you said, with key man, key person and
buy-sell agreements and funding for that. This is a real natural and I think you folks at Global have put together a really tight package and it really is easy because you help and
guide people through it, including the administration, so if any of the producers listening have a prospect in mind, give any of the LWT salespeople a call. We'll talk about that prospect, we have some collateral materials we can share with you, including census information that you need to get and then we could see what we can put together for you.