Bank Owned Life Insurance (BOLI) consists of policies insuring the bank's officers and key employees, typically purchased with a one- time payment.
BOLI is an alternative asset that may enable the bank to record attractive after tax yields through cash value accumulation and tax- free death proceeds.
A typical BOLI purchase is immediately accretive to earnings per share with earnings increasing in future years due to the effect of compounding.
BOLI should be considered as a part of the bank's overall Asset/Liability Management (ALM) strategy.
The financing of employee benefits (such as employer-paid health insurance and 401(k) matching contributions) is often the business purpose for BOLI.
It is not necessary to create new executive benefits to justify a BOLI purchase although BOLI is often implemented in conjunction with non-qualified benefit plans.
BOLI has no legal impact on benefits provided by the bank to its employees, nor does it impact their personal insurance programs.
The bank is the beneficiary and sole owner of the policies; however, sometimes the insured individuals receive a portion of the excess death benefit.
