COLI Threatened

One of the most touted solutions to the repurchase obligation is corporate owned life insurance (COLI). The House Republican tax bill, however, would eliminate special tax preferences for COLI. Under existing laws, companies do not have to pay tax on the build-up in premium value on life insurance polices they take out on employees. They can, however, take a tax deduction for money they borrow against these values. This tax hedge has made COLI attractive to many corporations (not just ESOPs). Wal-Mart (which offers ownership to all employees) takes out policies on almost all its employees.