What are the Nevada rules for employer-owned life insurance (EOLI)?

Employer-owned life insurance (EOLI)—also called corporate-owned life insurance (COLI)—has specific federal and state requirements that Nevada businesses must follow to preserve the tax-free treatment of death benefits.

Under IRC Section 101(j), passed in 2006, employer-owned life insurance policies only receive tax-free death benefit treatment if the following requirements are met: the employee is notified in writing before the policy is issued that the employer may insure their life and the maximum face amount; the employee consents in writing to being insured and designates the employer as beneficiary; the insured is an employee at the time the policy is issued; and the business is a valid applicable policyholder.

If these requirements aren't met, the portion of the death benefit exceeding the employer's cost basis (premiums paid) is taxable to the employer as ordinary income.

Nevada businesses using COLI for informal funding of deferred compensation or other purposes should maintain documentation of employee notice and consent forms for each policy. These records are critical in the event of an audit.

Nevada has no specific additional state requirements beyond federal IRC 101(j) compliance, but Nevada agents writing EOLI policies should be familiar with the notice and consent process to ensure proper documentation.

Agents in our network who specialize in business insurance can help Nevada businesses implement proper EOLI notice and consent procedures.