COLI/BOLI/ICOLI

BOLI: Bank Owned Life Insurance, the What and the Why

BOLI: Bank Owned Life Insurance, the What and the Why

Author Executive Benefits Team
Date February 12, 2019
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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

BOLI OPPORTUNITY (example only) 

Untitled design 2 edited

Chart includes representational information for illustrative purposes only.

Data for this article was sourced from the Office of the Comptroller of Currency

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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through Lion Street Advisors, LLC (LSA) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI and LSF/LSA are non-affiliated entities and separate entities from OneDigital.

Unless otherwise noted, VAI/VSI, LSF/LSA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.

Lion Street Advisors // Lion Street Financial

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