bank owned life insurance

A bank may consider obtaining Bank Owned Life Insurance to provide lucrative benefit packages for key employees. Banks consider key employees as assets and want to protect them, even if they are just temporary. Bank Owned Life Insurance can be a great way to train new employees, facilitating a smooth transition from employee to employee. Several advantages of this insurance type are listed below. Read on to learn more. Also, consider the tax advantages, purpose, and cost of bank owned life insurance.


A bank-owned life insurance plan (BOLI) protects the bank from employee death with death benefits and cash value build-up. BOLI is a special type of policy that banks may not sell to private individuals, so they must get informed consent before purchasing it. It has been a popular tool for banks to diversify their investment portfolio and offset benefit costs. But there are some disadvantages to BOLI. Listed below are some of the most important ones.

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Before the TCJA passed, the benefits of BOLI policies were tax-free. However, with the new tax laws, they are no longer tax-free. For example, BOLI policies will no longer cover the beneficiary of a life insurance policy. As long as the insured person has a substantial relationship with the policy owner, BOLI benefits will no longer be tax-free. In addition, tax-free BOLI policies will be subject to the new rules for death benefits.

Bank-owned life insurance policies may also be a tax shelter for the bank. Some banks may offer these plans to their employees as an employee benefit, but this is not always the case. The bank may be able to allocate the money to other initiatives as well. Unlike traditional investment vehicles, bank-owned life insurance provides banks with higher returns than the traditional types of investments. In addition, BOLI benefits the bank by providing tax-free money growth.


Bank owned life insurance is permanent life insurance policy purchased by banks on the lives of their employees. It serves as a means for the banks to recover employee benefits and offset liabilities for retirement benefits. Banks often purchase this type of policy to cover key executives and board members, while at the same time providing a financial hedge against failing the company. This type of insurance is commonly purchased by bank CEOs and presidents. They may also be able to take advantage of tax advantages associated with it.

Bank-owned life insurance is permanent and non-taxable and can serve many functions for banks. A key person insurance policy can protect a bank from the cost of transitioning a key person. Another common use for this type of insurance is as a tax-deferred employee benefit fund. These policies can provide tax benefits for the bank and its executives. Term policies are also sometimes used to cover borrowers with outstanding debt.

Bank-owned life insurance can be purchased for a single premium or a series of annual premiums. Employees can be included in this plan as beneficiaries or owners, and the bank owns the policy. Some banks also share a portion of the cash value growth with their participants. This tax-deferred growth of BOLI cash values generates a higher return than other forms of investment. It can also help a company offset employee benefit programs.

In addition to helping banks generate tax-deferred income, BOLI also helps retain the leaders of the company. Today, about two-thirds of U.S. banks have BOLI assets, with the cash surrender value totaling $182.2 billion. Banks with less than $10 billion in assets hold as much as 14% of their capital in BOLI. For this reason, BOLI is a valuable addition to a bank’s investment portfolio.


Bank owned life insurance policies are purchased by banks and funded with less than 25 percent of Tier 1 capital. Employees are not directly covered by the policy, but the bank does. It is a good way to cover the costs of benefits without having to incur the risk of overspending. Generally, only the top 30 percent of executives are covered. Because these policies are generally held for a long time, they can earn a higher rate of return.

Banks that purchase this type of policy can realize tax advantages. They can offset employee benefit costs and help retain key employees. The bank also has tax advantages in the form of cash values that can be used for a variety of benefits, including retirement, employee compensation, and loan security. Bank owned life insurance policies can also act as supportive capital for other deferred compensation plans. Banks typically use bank owned life insurance as a way to attract top employees and provide them with retirement benefits. Banks purchase bank owned life insurance for employees for several reasons, including the need to ensure their financial stability and protect themselves against possible financial failure.

A major cost associated with bank-owned life insurance is the upfront cost. In addition to the upfront cost of the policy, bank-owned life insurance policies typically require an annual premium. The most common type of bank-owned life insurance is a general account, which functions like a standard life insurance policy. The insurance company invests the funds however they see fit, typically in real estate or bonds. While these investments are risky, a higher-rated insurance company is likely to provide a higher return on investment.


Purchasing a bank owned life insurance policy has many benefits for the institution, such as tax benefits and the ability to offer competitive benefits to employees. Bank owned life insurance also allows the institution to allocate the proceeds to other corporate initiatives, such as employee retirement plans. The bank owns and is the beneficiary of the policy, so if the insured employee dies unexpectedly, the bank will receive the death benefit. Moreover, the policy can serve as a form of asset protection for the institution, because it is used as a security for loans.

In addition to being a tax shelter, bank owned life insurance benefits the bank. It pays a death benefit on the policy, while accruing investment earnings and losses. Employee benefit funds and split-dollar life insurance policies also benefit the bank, which shares the death benefit and cash-swap value of the policy. In addition to minimizing employee benefit costs, this type of policy is attractive to employees because it’s not difficult to obtain, and the bank benefits from its tax-free nature.

While BOLI is often confused with COLI, its primary purpose is to insure key employees. A bank’s own policy is a tax-deferred investment vehicle for key employees. As a result, the money invested in BOLI policies benefits the bank by keeping it in an investment that will grow tax-deferred. It also provides a tax-free investment vehicle for the bank’s money even if a key employee leaves the company.

The Division of Finance receives inquiries about bank owned life insurance. Some bankers have considered purchasing life insurance and treating the cash surrender value as a large part of its capital account. In other cases, the bank may treat the policy as a part of its compensation plan. However, the Department of Finance prohibits the purchase of life insurance solely for investment purposes. The regulations set strict guidelines for bank owned life insurance. These guidelines ensure that the bank does not violate the law.

Can I buy

The most common types of bank-owned life insurance are term life insurance and permanent insurance. Banks can use bank-owned life insurance as an offset for employee benefits and may purchase the policy in the name of a key employee, executive, or board member. These policies are not available to individual investors and must be purchased from banks with good credit quality. A bank-owned life insurance policy has no surrender charges and the cash surrender value is the same as the cash value.

To buy BOLI, you must be an employee or officer of a bank. The insurance policy is usually taken out on a high-value employee and paid out tax-free death benefits in the event of the insured’s death. As a result, it is not appropriate for individuals to buy BOLI. Rather, banks purchase bank-owned life insurance policies for their executives. They then use these policies to fund benefit plans and tax shelters. Banks can afford to pay higher premiums for BOLI because the policy will offset benefit programs.

While bank-owned life insurance policies are similar to individual policies, they differ in some ways. A bank-owned policy is similar to an individual life insurance policy, such as a whole life policy that maximizes cash value. However, bank-owned life insurance is usually purchased by bank executives for the employees of the bank. These policies typically offer higher returns and should be reserved for the highest paid executives. You should also know that bank-owned life insurance policies are largely tax-free because they are owned by the bank.

A bank-owned life insurance policy is different from a key man policy, which is issued by an individual. A key man policy is a corporate benefit that is intended for senior executives. Banks use bank-owned life insurance policies to diversify their investment portfolios. However, they have a few drawbacks. These policies do not provide tax-free death benefits, and they will be surrendered to the bank when the policy owner surrenders the policy.