Bank-Owned Life Insurance


What is BOLI?

BOLI is a permissible, alternative investment for banks. At the end of 2015, nearly 60% of all banks – almost 75% of those larger than $500 million in assets – reported owning BOLI. BOLI is a very high cash value life insurance policy that is engineered for a bank’s income statement and balance sheet. There are generally no loads or surrender charges, so beginning cash value equals the premium paid and earnings are immediately accretive to earnings. Premiums are paid by the bank, who will be the owner of the policy. By design, the policy is a MEC and the death benefit is minimized relative to the premium paid, which provides the maximum the overall investment yield for the bank.


Why Buy BOLI?

The yield on cash surrender value allows the bank to have earnings that are generally greater than what is available in the typical bank investment portfolio. Unlike bonds, the book value of BOLI is not affected by rising interest rates. The increased earnings offset broad-based employee benefit costs, allowing the bank to maintain a competitive total compensation program. In addition, the life insurance benefit in excess of cash surrender value (the “net amount at risk”) is often used to provide a very efficient supplemental life insurance benefit for the insured bank employee.


Who Buys BOLI?

Any bank can buy BOLI, subject to the carrier’s accepting them as a suitable risk for the carrier. The amount a bank can buy or own is a function of their regulatory capital.

The decision is typically made by the CEO or CFO, with board oversight, so it’s important to have a relationship at the C-suite, or perhaps the E-suite, level.

Please contact MAF Companies at (800) 979-9393 to learn more about Bank Owned Life Insurance.