Page 9 - 1Q 2018 Reporter

The BOLI Boon for

Community Banks

By Kevin Killian, Executive Director of

Kevin Killian

Bank-owned life insurance (BOLI) can be a percent. Compare that with current returns on

valuable asset for banks of all sizes, including taxable fixed income investments.
community banks. Offered by most of the
Senior executives should consider BOLI
highly rated insurance carriers, BOLI is a single
as a means of driving more net income to
premium insurance policy in which the bank is
the bank’s bottom line … especially in this
the beneficiary and owner. While banks often
current era of low interest rates. The additional
utilize BOLI as a tax shelter, given BOLI’s status
earnings can be used to increase profitability;
by the Internal Revenue Service (IRS) as a
pay for the cost of providing certain benefits,
tax-free asset, it is also utilized to help offset
including propping up the benefits structure of
the ever-increasing costs of employee benefit
a 401k or pension plan; and/or finance new
programs.
benefits programs.
According to a recent report* released
BOLI can also be purchased for executives
in June 2017, evidence of BOLI’s growth
and officers as a way of offsetting financial
as an alternative asset strategy for financial
losses incurred upon a given executive’s
institutions can be found in the following
death. While some may find this practice
statistics: BOLI assets reached $164.5 billion
objectionable – “I don’t want to put a price tag
as of June 30, 2017, reflecting a 3.5 percent
on my employees” is a concern I frequently
increase from $159 billion as of June 30, 2016.
hear – bear in mind that BOLI is, first and
Of the 5,787 banks and savings associations
foremost, a life insurance policy. As such, it
surveyed, 62.8% reported holding BOLI assets
must include a death benefit … which the
as of June 30, 2017, up from 61.3% from the
bank has the option of donating to a charity,
same time period a year ago.
perhaps in the decedent’s name. There are
The key factor to consider here is the also ways of paying part or all of the benefit to
policy’s return on investment. If a BOLI policy the decedent’s beneficiaries and these design
can be expected to appreciate in value at options include providing supplemental life
around 3.0-3.5 percent, remember that since insurance or replacing group term insurance
that growth is tax-free, the actual returns on a thus delivering the insurance more efficiently
tax equivalent basis are greater – more like 5-6 via BOLI.

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March 2018 IllInoIs RepoRteR