Understanding BOLI / COLI

Bank Owned Life Insurance (BOLI) and Insurance Company Owned Life Insurance (COLI) is life insurance owned by a financial institution.

There are three primary types of life insurance product available, general account, hybrid, and separate account, each with unique characteristics.

Policies are issued on individual’s, limited to the company management group where insurable interest exists between employer and employee. The BOLI Group follows IRC 101J which among other things requires elective participant consent at issue (participation is optional). Groups of 10 or more insureds may qualify for “guaranteed issue” underwriting.

The primary purpose of BOLI & COLI is to help offset employee benefit costs through long term cost recovery of company benefit obligations to employees. A few of the other optional uses include supplemental death benefit coverage to participants, key person coverage, executive benefit planning, and more.

The top BOLI/COLI carriers possess investment grade credit ratings (as determined by third party credit rating agencies), which is attractive in an asset that generates non-interest income, and offers “book value” accounting.

BOLI/COLI earnings are income tax-free under current tax law, with tax free insurance proceeds if held to maturity.

BOLI/COLI is a diversified asset, frequently with low correlation to other bank assets.

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