Executive Benefits- BOLI

Question 1

What is a bank owned life insurance (BOLI)?

Answer 1

BOLI is a life insurance product designed for financial

institutions by carriers that specialize in this business.

Question 2

What are the five characteristics of a BOLI?

Answer 2

-The bank purchases individual life insurance policies on the lives of its key officers, executives, or directors
-The bank is the owner of the policy and pays a one-time
single premium at issue
-The bank’s intent is to hold the policy until the death of the insured at which point it receives the proceeds tax-free
-Premium equals cash value day one
-The policy has no loads, and the bank begins earning tax-defrred interest on its full deposit on day one

Question 3

What are the two ways BOLI delivers income for a bank?

Answer 3

Tax deferred growth of the cash surrender value is recorded as annual non-interest income
Non-taxable insurance proceeds paid to the bank and/or survivors at the time of death of an insured officer.

Question 4

What are the five reasons a bank should purchase BOLI?

Answer 4

• BOLI may generate higher tax equivalent yields than most traditional bank investments.
• BOLI delivers income for a bank
• Rising expense of employee benefit plan
• Recruiting, retaining and rewarding their key executives
• Low loan demand- low returns on alternatives