BOLI (Bank-Owned Life Insurance) - has proven to provide a cost-efficient and effective means for banks to offset rising employee benefit costs, such as supplemental executive retirement, director deferral plans, and health care.
Because we have direct relationships with various insurance companies that manufacturer Bank Owned Life Insurance products we are able to work with insurance brokers you may have a relationship with.
Most banks look for cost effective and tax-efficient ways to fund their employee benefit programs. Purchasing BOLI has become an increasingly common way to accomplish this objective. In a BOLI program, a bank purchases life insurance on a defined group of its highly compensated officers and directors. The bank pays the policy premium, owns the cash value of the policies, and is the designated beneficiary - most banks choose to share the death benefit with the executive's beneficiary.
Prior to purchasing this insurance, the bank is required by statute to obtain each employee's affirmative consent to the bank insuring his or her life, and the bank must disclose to each proposed insured employee the beneficiary designation and the maximum amount of insurance coverage under the policy on his or her life.
BOLI can be used to help fund and support a variety of employee benefits, including non-qualified deferred compensation and other post-retirement programs.
BOLI can potentially offer annual after-tax returns that are higher than the returns earned on other assets on the bank's balance sheet.
A bank's earnings derived from BOLI may come from growth in the policy's cash values or from life insurance benefits payable on a tax-free basis upon an insured's death. It is treated as "other non-interest income".
The growth in a policy's cash value is tax-deferred unless accessed via a partial-withdrawal or surrender, if permitted under the terms of the policy.
(The growth in a policy's cash value is tax-deferred unless accessed via a partial-withdrawal or surrender, if permitted under the terms of the policy. Loans against your policy accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest.)
Background: "Life insurance holdings can serve a number of appropriate business purposes. Because the cash flows from a BOLI policy are generally income tax-free if the institution holds the policy for its full term, BOLI can provide attractive tax-equivalent yields to help offset the rapidly rising cost of providing employee benefits." and...
Legal Authority: "...national banks and federal savings associations may purchase life insurance in connection with employee compensation and benefit plans, key person insurance, insurance to recover the cost of providing pre- and post-retirement employee benefits..."
"It is generally not prudent for an institution to hold BOLI with an aggregate CSV that exceeds 25 percent of its Tier 1 capital."
Implementation: The bank selects and insures a group of executives that fall into the top 35% of highly compensated employees (IRC 101j). The bank is both beneficiary and owner subject to any split dollar arrangements. Death proceeds are generally income tax free.
Accounting and Compliance: Pre-purchase due diligence, quarterly compliance and annual compliance reports, and suggested monthly accounting entries, are among the items provided by our preferred plan administrator, The Pangburn Group. Samples of the reports can be seen at: www.pangburngroup.com.