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Bank owned life insurance

Bank owned life insurance (BOLI) is a financial vehicle for banks and financial institutions to offset their employees' expenses connected with life insurance and to earn tax-free income. BOLI is a cost-effective asset management strategy. This strategy is generally long-term, liable to regulatory guidelines and to careful scrutiny that enable banks to enhance their financial performance, to keep their clients and to increase shareholder value. BOLI typically incorporates a qualified retirement plan and health insurance of the bank officers. There are two main sources of income under this insurance - growth of the cash value in the policy and insurance proceeds paid to the bank in the event of the insured's death.

BOLI normally ensures the lives of executive officers and/or directors. The bank opting for these policies pays the premiums and it owns the policies protecting the employees, which allows it to be the legitimate recipient of the increase in the policies' cash value. The benefits are paid out from the specialized fund set for this purpose under the contract with the insurer. Thus, BOLI provides a tax-free scheme for funding the employees' benefits at cheaper rates.