There are different kinds of life insurance with different policies and bank-owned life insurance is among them. This type of life insurance is solely made to benefit the bank involved.
Also, employees of the bank can come under the protection of this bank-owned life insurance, and also employees’ benefits are paid from this plan too.
The bank-owned life insurance is not the traditional personal life insurance coverage. It is more of a corporate kind of business.
It is another means of generating money for the bank because banks always remain the beneficiaries of such policy. Even when it looks like the bank is looking out for its employees.
What is a Bank-Owned Life Insurance?
Bank-Owned life insurance is an insurance policy where the bank is the policyholder and also the beneficiary of the insurance. Many banks purchase this insurance because it is tax efficient.
Basically, the banks use this coverage to pay for all their high-end employee benefits. Most times, the employees are not the only ones the banks use this on. They also use it to pay for the executive board member’s benefits in the bank.
At times, one of the reasons why banks offer this benefit is to have a higher competing interest among their competitors.
More so, it has a way of favoring the bank generally by receiving death benefits on behalf of an employee when they pass away suddenly.
Interestingly, this kind of insurance does not cover all bank employees. Just the high-end earners and the board members of the bank.
How a Bank-Owned Life Insurance works
Firstly, bank-owned life insurance is a permanent policy. Again, the bank has to seek the consent of the employees before taking out life insurance on their behalves. The employee has to give their consent in writing.
Furthermore, once it becomes clear that the bank has the go-ahead to purchase the insurance, the bank contacts a provider and begins to pay for the premiums.
From the money made from this insurance, the selected employees get all the employee benefits assigned to them. Moreover, the funds from this insurance remain tax-free but the bank will always give a report on the insurance contract each year. So far the policy still remains functional.
Basically, banks go to this length for their employees that they consider very important to the organization. And, they stand to lose out if the employee leaves the bank.
Additionally, the fact remains that the benefits stop once the employee passes away. Nothing goes to their family members as compensation or benefits.
Types of Bank-Owned Life Insurance
In continuation, this type of policy comes in 3 different types. The general, separate, and the hybrid type of policy.
General
The banks mostly invest in stocks or real estate with companies that are very reputable. The details of the investments are shown and shared broadly.
Now, this is the one most banks go for, whenever they decide to buy a life insurance policy.
Separate
This type is managed by fund managers for the banks. However, the managers will always provide the banks with detailed credit ratings and their portfolios. However, these details are not shown openly.
Hybrid
This is called hybrid because it combines parts of the general and parts of the separate insurance accounts together. More so, it gives the bank the opportunity to receive detailed reports on its portfolio and credit ratings. They keep the details away from the public just like in the separate account.
What happens to BOLI?
As a matter of fact, the banks keep paying the high-end employees and board members for the benefits. Meanwhile, as a bank employee, the bank has to seek your consent in writing before buying this insurance on your behalf. This is to make sure the bank retains the employee because of how valuable they are.
However, in the event that the employee leaves the bank, retires, or passes away, the bank retains the insurance. Not just that, the bank becomes the beneficiary of the benefits that come with the life insurance policy.
Remember, these benefits do not go to the families of the employee in any way. It stays in the bank and the bank may decide to fund the employee benefit of others on the plan.
Therefore, employees should first, buy a personal life insurance policy that will be beneficial to them and their families before agreeing to the bank’s offer.
Advantages of BOLI
Obviously, a bank-owned life insurance plan is an avenue for the bank to make extra money. The benefits of the insurance stay with the bank even when the employee decides to leave. The bank will immediately redirect the funds to paying for the other employee’s benefits.
As the insurance matures, the banks get better investment dividends. Also, the funds generated from this plan remain tax-free. The employee benefits funds go tax-free.
Disadvantages of BOLI
By the way, in the event that the bank could not pay for the premiums again, the tax will be introduced into the policy. More so, any gain that the policy makes from either investment, will be charged a 10 percent penalty.
Who can purchase BOLI?
This type of insurance is typically meant for the banking system. Individuals just can not buy this type of insurance.
Again, companies can not own this policy either. They can purchase corporate-owned life insurance (COLI). but this remains just for the banks and their selected befitting employees. And it is a permanent insurance policy for the banks that invest in it.
