Bank Owned Life Insurance: Executive Overview
- Bank Owned Life Insurance (BOLI) is an institutional financial product used by the majority of U.S. banks.
- BOLI involves the purchase of single premium institutionally-priced permanent life insurance on eligible consenting bank officers. The bank is the owner and beneficiary of the policies.
- Initial lump-sum premium investment equals cash surrender value on day one.
- Products are no-load, no-surrender charge and all of the income is tax-free if policies are held to maturity.
- Banks may hold up to 25% of regulatory capital (Tier 1) in BOLI. Many banks own 15% to 25%.
- To emphasize earnings, policies are structured to maximize investment aspects and minimize expense of death benefit portion of policy.
- BOLI generates non-taxable profit and loss (P&L) earnings equal to the growth in cash surrender value.
- A portion of the death benefit may be shared with insured officers via a supplemental life insurance plan.
Why Do Banks Use BOLI?
Bank Owned Life Insurance (BOLI) is a desirable asset for banks. It is used by over 3,200 banks nationwide to offset the rising costs of employee benefits programs. Over $188 billion of BOLI cash values reside on bank balance sheets.
Challenges for Bank Leadership:
- Attracting and retaining quality management talent
- Creating management incentives
- Restoring retirement income shortfalls for key executives
- Balancing risk with reward for directors
BOLI matches the long-term nature of benefit plan liabilities, while typically providing a higher after-tax return than other bank eligible investments. In a BOLI transaction, the bank insures the lives of a group of select management, pays the premium, owns the cash value and is the beneficiary of the death benefit of the policies.
Bank Owned Life Insurance: Achieve Financial Balance
BOLI may be used for benefit purposes such as:
- Provide benefits to key employees
- Retain top directors & executives
- Protect against loss of critical individuals
BOLI as an asset will:
- Offset existing benefit costs
- Post tax advantaged earnings
- Maximize investment yields
- Improve bottom line
Learn more here: Institutional COLI/BOLI/ICOLI
And contact the Fulcrum Partners team: FulcrumPartnersLLC.com/team
Check the background of the Fulcrum Partners investment professionals on FINRA’s BrokerCheck.
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC, 130 Springside Drive, Akron, OH 44333-2431, Tel: 1-800-765-5201. Investment Advisory Services offered through Valmark Advisers, Inc., which is a SEC Registered Investment Advisor. Fulcrum Partners LLC is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.