Today more than 4000 banks own, more than $140 billion in bank owned life insurance (BOLI) policies. In a specific sense, bank owned life insurance is an attractive permanent life insurance policy purchased for several complementary purposes: to compensate (and retain, in fact) highly placed executives that are instrumental to the continued success of the institution; as well as to fund unfunded long term employee/executive benefit liabilities. Bank (National, Regional or Community) or Credit Union can purchase normally single premium universal or whole bank owned life insurance policy from Tier 1 assets on key employees for several common purposes: to act as supportive capital for the funding of other deferred compensation plans like pensions and retirement packages. Bank is the owner and beneficiary of these policies
Basically, if you’re a bank president or CEO, you purchase bank owned life insurance for on certain employees to provide for them in their eventual retirement, earn better return on Tier 1 assets, as well as to hedge against financial failure.
the insured employee passes away unexpectedly or at the end of life expectancy, the policy you purchased – and have paid all premiums – comprises the death benefit; of which your Bank is the sole beneficiary. This tax free sum can then be used to try and fill the vacuum left by the death of the key executive, as well as fund other well-defined business needs.
