Corporate-Owned Life Insurance (COLI/BOLI) - Premium Payment and Cash Surrender Value
Recording the premium payment on COLI/BOLI policies and the increase in cash surrender value (CSV) — a common vehicle used to informally fund NQDC, SERP, and executive benefit obligations.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Corporate-Owned Life Insurance - Cash Surrender Value (Increase) | Asset (+) | 18,500,000.00 | - |
| COLI/BOLI - Premium Paid (Above CSV Increase) | Expense (+) | 2,200,000.00 | - |
| Cash & Cash Equivalents (Total Premium Outflow) | Asset (-) | - | 20,700,000.00 |
💡 Accountant's Note
COLI (Corporate-Owned Life Insurance) and BOLI (Bank-Owned Life Insurance) are life insurance policies purchased on employees (with their consent under IRC Section 101(j)) where the corporation is both the owner and beneficiary. The CSV grows tax-deferred — the corporation can borrow against CSV to fund benefit payments. The CSV increase is recorded as an asset increase and reduces the net premium expense. At death, the tax-free death benefit (IRC Section 101(a)) provides a recovery of costs. Insurance carriers invest BOLI assets in a separate account (similar to a pension plan), generating returns that build CSV. These vehicles are widely used to fund rabbi trusts, NQDC plans, and SERP obligations.
Practitioner & Systems Framework
💻 ERP Architecture
COLI/BOLI policies are recorded as long-term assets at CSV (not face amount). Annual increases in CSV reduce the net cost of the insurance. Policy loans against CSV reduce the CSV balance (and create a liability). For bank holding companies (BOLI), the net income from BOLI (investment income equivalent) reduces non-interest expense — a significant source of income for bank benefit programs. IRC Section 101(j) requires annual employee notice and consent for employer-owned life insurance on employees.
⚠️ Audit Flags
Auditors confirm CSV balances directly with the insurance carrier (direct confirmation). The tax-exempt status of death benefits requires IRC Section 101(j) compliance — if the employer failed to obtain proper notice and consent from insured employees, death benefits lose their tax exemption. Large COLI portfolios (common at major corporations — some have billions in COLI CSV) require specific disclosure as a significant asset category.
📄 Required Documentation
Insurance policy statements showing CSV balance, premium payment records, IRC Section 101(j) notice and consent documentation for each insured employee, insurance carrier direct confirmation of CSV, policy loan balance (if any), BOLI investment account statements, death benefit tax-exempt analysis.
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