Bank Owned Life Insurance (BOLI)

a form of life insurance purchased by banks where the bank is the owner and beneficiary of the policy.

It’s an allowable transaction under the BOLI Interagency Statements on the purchase and risk management of life insurance, and its business purpose is defined as financing employee benefit liabilities/costs. A BOLI policy’s initial cash value is 100% of the initial premium paid. Inside build-up of the policy’s cash value is tax-deferred and death benefit proceeds are received tax-free.

BOLI Benefits

BOLI enables banks to generate tax-advantaged income to offset and recover the costs of employee benefit plans, whether healthcare, group term insurance, retirement, deferred compensation and more.

It generates stable revenue from non-loan sources and enhances the Other Non-Interest Income component of the income statement. BOLI also provides competitive returns with superior credit quality and increases earnings per share (EPS) and shareholder value. In today’s BOLI marketplace, policies are designed to remove policy owner’s interest rate and mark-to-market risk allowing for continued, steady policy growth. Beyond that, if desired BOLI allows the bank to share a portion of the life insurance coverage with key executives, allowing for competitive recruitment and retention.

Common Misconceptions

  • A BOLI plan must include all bank officers on a non-discriminatory basis
  • If a life insurance carrier is more highly rated, it must offer banks lower interest rates
  • All BOLI carriers offer generally similar BOLI products and investment portfolios
  • BOLI is an illiquid asset that the bank cannot get rid of
  • All BOLI producer groups provide the same level of service and support

The Full Range of BOLI Services Included at No Additional Charge

  • Pre-Purchase Documentation
  • Regular Policy Value Reporting
  • General Ledger Entries
  • Independent Third Party Carrier Credit Analysis*
  • Quarterly Compliance Reporting
    • Social Security Sweeps*
    • Peer Group Analysis
    • Concentration and Lending Limit Analysis
  • Quarterly Carrier Due Diligence
    • Review of Carrier Financials
    • Review of Carrier Ratings
    • Comparative Carrier Analysis
  • IRS Form 8925 Tax reporting assistance and support
  • Death Claim Processing
  • Carrier Standard Confirmation requests
  • Implementation and review of BOLI Investment policy
  • Storage and retention of:
    • BOLI Insurance Policies
    • Employee Consent forms
    • Carrier Annual Reports
    • Carrier Statements
    • Trust documents
    • Plan Legal Agreements
    • Plan Forms, such as beneficiary designations and election forms
  • Regular updates
    • Carrier Ratings and Financials
    • Carrier and Insurance news
    • Industry and Market Compliance Issues
  • In-Person Annual Performance Review and Projection
  • Assistance with Auditors and Regulators
  • Secure online access

*Provided by third party administrator. Not affiliated with Newcleus.

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