Bank Owned Life Insurance (BOLI) is not new. Approximately 1 out of 2 US Banks own BOLI today. BOLI is simply an institutionally- designed, Key Person life insurance policy; it performs like a tax-free investment.

Here’s how it works: A bank purchases bank owned life insurance (BOLI) bank-owned key-personnel like bank officers or other management personnel. The bank owns the policies, and pays the premiums. If an officer or other key management member dies, the bank is the beneficiary of the insurance proceeds, not the individual’s family members – although the bank may choose to share the proceeds with other members on the plan. BOLI benefits the bank in a number of ways, specifically:

  1. Offset employee benefit costs

BOLI gives banks a vehicle to effectively offset the costs of employee benefits. The policy’s cash surrender value (the value of the policy at any given time before it matures) grows over time; that value is tax-deferred. If an employee dies, the bank receives any death benefits tax-free. It can then turn around and use that money for other expenses without having to dip into profits.

  1. Diversify the bank’s portfolio

Any BOLI death benefits collected are tax free; in essence free money (less premium costs) that improves the balance sheet.

  1. Improve the bank’s asset/liability profile

BOLI allows banks to meet employee benefits in a cost-effective fashion and at the same time increase value to shareholders as applicable. This improves the bank’s asset/liability profile.

  1. Provide money for employee remuneration

In the event of an employee’s death, banks can use the BOLI death benefits to provide employee remuneration, such as offering incentives to attract and keep new management personnel; again, because the death benefits provide the money to do so, banks do not have to dip into earnings or capital to fund these expenses.

  1. Collect death benefits even on retired employees

Most banks wisely keep up bank owned life insurance (BOLI) policies on employees even after they’ve retired. Upon the employees’ deaths, the bank receives the requisite benefits tax free, and again uses this “”free”” money to fund other necessary expenses without having to dip into profits.

Global Investment Strategies are BOLI specialists. We can handle the details of a BOLI program efficiently, with limited time required by the financial staff of the Bank.

It is important for a Bank to consider using an independent Third Party Administration firm to handle the oversight of the ongoing regulatory due diligence and accounting work. Working with Global Investment Strategies, checks and balances will be in place to satisfy the needs of the financial institution and the regulatory authorities.