When we think about life insurance, we generally picture an individual policy designed to protect a family. But in the United States, life insurance in addition to its guaranteed death benefit can also become a businessmanagement tool. Known as Corporate Owned Life Insurance (COLI), this structure is stilllargely unknown among French entrepreneurs, even though it can play a decisive role inthe strength and long-term sustainability of a company.
1. Understanding the COLI concept
COLI is a strategy where a life insurance policy taken out and owned by the company, with the objective ofprotecting business continuity and optimizing its financial strategy.
- In the event of the death of a partner, the company receives the proceeds, which ouldmakeit
possible to finance a buyout of shares without weakening cash flow. - When a key employee passes away, the company has liquidity available to help absorb theoperational shock.
- Some so-called “permanent” policies even generate a cash value that can be accessedto finance projects or cover liabilities.
Example: a French SME established in the U.S., or a French investor residing in Miami, coulduse a COLI policy to buy out the shares of a deceased partner and thus avoid heirs enteringthe company’s governance.
2. Why this tool may be little known
- Many French companies operating in the United States are unaware of this mechanism forthree main reasons: A perception of life insurance limited to personal use.
- The complexity of U.S. law and tax provisions.
- The lack of appropriate advice from certain intermediaries who are not specialized
in cross-border matters.
Example: a French startup in San Francisco, advised by a generalist firm, was unaware ofCOLI and had to finance a share buyout with its own funds, weakening its investmentcapacity.
3. COLI: a strategic lever for comprehensive planning
COLI should not be viewed solely as a simple death benefit policy. It is fully integratedinto a company-wide wealth strategy, particularly in a cross-border context.
When properly structured, it can help allow the company to:
- Ensure continuity in the event of the death of a partner or key employee, withoutdisrupting operations or governance.
- Protect the economic value created by preventing uninvolved heirs from enteringthe shareholding structure.
- Strengthen financial stability: some policies generate a cash surrender value thatcan be used to finance external growth, secure financing, or weather a difficult period.
- Optimize succession planning by anticipating inheritance and tax issues, with a viewto preserving a family-owned or entrepreneurial business.
- Benefit from favorable tax treatment, depending on the type of policy and thetreatment applicable to premiums and benefits.
In summary, COLI can be much more than a risk protection tool: it can be a wealth structuringinstrument, particularly relevant for French entrepreneurs in the United States who wantto help ensure the long-term sustainability of their company while organizing their succession.
4. Key points of attention
COLI can be a powerful tool, but it requires rigorous implementation:
- Choosing the right type of policy (term life, whole life, universal life).
- Properly determining the ownership structure (company, holding company, trust).
- Anticipating taxation based on the insured’s status (U.S. resident or non-U.S. person).
- Verifying specific reporting obligations applicable to expatriates.
Conclusion
Corporate-owned life insurance (COLI) is still too often overlooked by French entrepreneursin the United States, even though it can serve as a cornerstone of stability andtransmission. When used correctly, it can help protect the company, secures partners, and reassuresinvestors.
At USA France Financials Group™, we help French business leaders integrate these tools into theirstrategy, taking into account Franco-American legal and tax specificities.
Future written communications may be in English only. The primary purposes of life insurance is the death benefit. Life insurance is intended to provide death benefit protection for an individual’s entire life. With whole life insurance the payment of the required guaranteed premiums, you will receive a guaranteed death benefit and guaranteed cash values inside the policy. Guarantees are based on the claims-paying ability of the issuing insurance company. Whole life insurance should be considered for its long-term value. Compliance Code 8763885.1