Benefits of BOLI

Bank owned life insurance (BOLI) is a long-term asset, subject to regulatory guidelines and scrutiny that can help financial institutions retain and attract quality executives and increase shareholder value.  It can also achieve other business purposes, such as reducing rising health care costs and related employee benefit expenses.

One study by The Todd Organization found that 43 percent of all banks with assets of more than $50 million reported owning BOLI for fiscal year 2003.  Another study focusing on high quality institutions with assets of $100 million-$2 billion found that 64 percent own at least some BOLI.

BOLI insures the lives of a group of bank employees (usually officers) and/or directors.  The financial institution pays the premiums on the policies, owns the policies, and is the beneficiary of the increase in the policies’ cash value.

The cash value grows tax-deferred, allowing the bank to book annual increases in cash surrender value as tax-deferred “other income.”  The initial premiums plus the previously deferred gains in cash value, as well as proceeds from death benefits are all paid out on a tax-advantaged basis. 

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