I chose to focus on life insurance and its effect on a company's
bookkeeping. A relative of mine was victim of a corporate life
insurance in the early 90's where the company her husband worked
for had made itself the beneficiary of his policy. Since that time the
rules have tightened on corporate owned life insurance (COLI). a This
includes only being available to the highest paid 1/3 of employees
and written notice to the employee if the company is the beneficiary
(Cussen, 2022).
Life insurance for a corporate employee is a strange concept but it
does make sense, corporations want to cover losses due to the death
of high-level officers. a In the cases where the corporation is the
beneficiary, they can collect dividends and use it to lower insurance
expense (Whalen, 2017, sec. 13-8b). If the policy is cancelled, then
the whatever cash was raised during the life of the policy is debited to
the company. a If the employee dies while the policy is active, the
company can credit the cash surrender value and claim the proceeds
as an untaxed gain.
If the life insurance is part of compensation package that goes to an
employee than it is treated differently. a Since life insurance would be
an extra or negotiated benefit, it would fall under the rules of a
defined contribution (Whalen, 2017, sec. 19-2a). a The company
would record whatever the costs are as an expense, there would be
no assets because the benefit goes to the employee and is separate
from the company. a
Cussen, M., (2022). Everything You Should Know About Corporate-
Owned Life Insurance, Investopedia.com, January 27, 2022.
Everything You Should Know About Corporate-Owned Life Insurance
(investopedia.com)
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate
accounting: Reporting and analysis. Boston, MA: Cengage Learning.
