Bank Owned Life Insurance

Bank owned life insurance (BOLI) can be an excellent vehicle for financing the cost of executive benefits and other employee benefit costs at banks and thrifts. The Todd Organization works closely with financial institutions so that BOLI is part of an effective asset-liability management strategy that strengthens shareholder value, addresses plan participants retirement needs, and meets regulatory guidelines. One study by The Todd Organization found that nearly half of all banks with assets of more than $50 million reported owning BOLI. Another study focusing on high quality institutions with assets of $100 million-$2 billion found that almost two-thirds 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 both the increase in the policies’ cash value and the death benefits.

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.