substitution of insured

  • Some corporate owned life insurance (COLI) products issued in recent years have included a substitution-of-insureds provision granting the corporate owner the option to change the insured. Under this option, if Employee A ceases employment with the corporation and Employee B is hired to replace Employee A, the corporate employer can substitute Employee B for Employee A as the individual insured under the policy. Typically, benefits and premiums under the policy do not change. Thus, an employer can insure a position (for example, chief financial officer) rather than the particular individual holding that position. When a new policy is issued, it is generally a tax-free exchange.

    Internal Revenue Service 1

1Internal Revenue Service, Internal Revenue Manual 4.42.6 Glossary, http://­www.irs.gov/­irm/­part4/­irm_04-042-006.html (last accessed Dec. 22, 2009).