Bank-Owned Life Insurance (BOLI) is a tax-efficient method of offsetting employee benefit costs. The cash value growth in the policy is tax-deferred, or tax-free if held until death, and the death benefits are tax-free.
These policies insure the lives of key employees or bank directors, and give you a tax-favored asset with returns that typically exceed after-tax returns of more traditional bank investments by 150 to 300 basis points. BOLI is a long-term asset, and when properly implemented and administered, offers your bank a highly-rated investment option.
Here’s how it works. Your bank purchases the life insurance on a select group of key employees or directors, and is the owner and beneficiary. The cash value growth within a BOLI policy produces a return greater than the opportunity cost to generate additional bank profits.