What is BOLI? What Insurance Companies sell it?

[Guest PAULMET]

What are the regulations re: Bank Owned Life Insurance (BOLI) on the Officers and Directors of Regional Banks.

What Insurance Companies are offering a product in this area?

[Guest EAKarno]

BOLI is simply corporate owned life insurance (COLI) where the corporation happens to be a bank. The most recent guidelines regarding the purchase of BOLI by national banks are covered by OCC Bulletin 2000-23 issued by the Comptroller of the Currency Administrator of National Banks.

Because banks are required to hold a certain amount of assets to satisfy reserve requirements, insurance on executives held till death of the executive is a common practice with banks. And, since the insurance will be held till death, it is usually purchased as a modified endowment contract (MEC) which allows for a better cash value performance than a traditional policy. The MEC provides a tax free investment that outperforms, on an after-tax basis, anything else the bank is likely to invest in. Plus, at death, the bank gets a huge tax-free distribution. All of which looks great on the books of the bank.

The purchase of BOLI must be incidental to the business of banking, therefore it is usually done as a means of funding nonqualified executive benefits.

COLI/(BOLI) is sold by most of the largest national carriers, however, it requires the services of a broker that specializes in such transactions. The implementation and administration of a successful BOLI program is so complex that there are but a handful of firms that can properly handle the task.

As you may have surmised, my firm is one of such firms. Should you or your client have any questions, please feel free to contact me at 404.504.3864 or email me at eric.karno@balser.com.

Regards,

Eric A. Karno, JD

Balser Financial Corporation