Can Companies Take Out Life Insurance On Their Employees? 
Some companies will take out life insurance on their key employee -LRB- s -RRB- so that the business would have the resources to keep operating while trying to replace that employee -LRB- s -RRB- , in the event of their passing . This is called Key Man or Key Person Insurance . Corporate Owned Life Insurance -LRB- COLI , for short -RRB- became popular during the 1980 's as a way to cover the entire pool of employees due to the tax shelter status given these policies by the IRS . Subsequent reforms give COLI tax favorability only if such coverage is purchased on top wage earners and if they are notified of the policy in advance , and further restrictions are in the pike . As such , life insurance policies that cover all employees in the business are much less common . 