What is BOLI?
Bank Owned Life Insurance is an investment that offers banks a unique combination of investment return and stability. BOLI is an asset that appears on a bank’s balance sheet as “other income.” It is life insurance purchased and owned by a bank and is available only to profitable financial institutions. BOLI is an effective tool for both ALCO and risk management.

How much BOLI can a bank purchase?
The amount of BOLI that a bank can purchase is restricted by two regulatory limitations – a percentage of capital and the present value of expected future employee benefit costs. For a commercial bank (OCC, Fed, FDIC), the guideline is 25% of Tier 1 capital + allowance for loan loss reserves. For OTS banks, the limit is 25% of Tier 1 capital. In all cases, the exposure to one carrier is the 15% rule under the legal lending limit regulations. In addition, the amount of death benefit cannot exceed the present value of projected total employee benefits.

Why should a bank buy BOLI instead of another
bank eligible investment?
BOLI provides historical ROAs of over 200 basis points and historical ROEs of 30 percent or more, with the ability to manage the various risks associated with investment decisions. In addition, BOLI is classified as an “other asset” and provides other non-interest income, something most investors consider important.

What does the process of implementing a plan involve?
Three Steps:

            1. Education

            2. Due Diligence

            3. Implementation

How long does the implementation process take?
If one considers the time the concept of BOLI is first introduced, the process completion time will vary greatly from bank to bank. Once the decision is made to purchase BOLI – from wire to employee consent to policy issue, the transaction can take less than two weeks.

Who is covered by the insurance policy?
A designated group of officers of directors of the company. BOLI is not “Janitor’s Insurance.”