Corporations, banks and insurance companies often turn to corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) to help them manage the growing liability and expense of their benefit plans. These options help such companies improve their financial position while managing tax-deferred cash value growth, tax-free death benefits and a broad range of investment options.
In a COLI/BOLI policy, the growth of its cash value is tax-deferred until accessed via a partial withdrawal or surrender – if they are permitted under the policy’s terms.
Common rising employee benefit costs that banks and other companies encounter include supplemental executive retirement, deferred compensation programs and post-retirement medical obligations, all of which are major expenses that COLI/BOLI help control.
Employers who opt for these types of coverage purchase life insurance on a group of key employees, who must obtain employee consent before such policies are purchased.
A major benefit of BOLI is that it has the potential to offer annual post-tax returns that are higher than the returns from bank investments. Earnings from BOLI policies can come from growth in the account value each year or life insurance benefits payable on an income tax-free basis upon an insured employee’s death.