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Bank-owned life insurance "works" in the sense it is typically reputable and the underwriting carrier is fairly highly-rated.
However, often, the beneficiary is not your spouse or other family member but rather the bank itself. Also, plans may be limited and the premium you pay might be higher (perhaps significantly) than other available options.
Always shop around for life insurance, especially term coverage.
Co-Founder, Coastal Financial Partners Group, California
Bank owned life insurance (BOLI) allows banks to obtain better after tax return on assets than tier 1 capital. The bank is owner and beneficiary of the life insurance, not bank executives.
Regulations have tightened in recent years and banks must have a legitimate reason to own life insurance on the lives of highly compensated executives of the bank. BOLI is usually set up to informally fund nonqualified benefit plans for selected executives. The executive is an insured in these policies but has no ownership interest. The executive's family not a beneficiary of the policy though the nonqualified benefit agreements may have death benefit provisions which are income taxable to them unlike a life insurance policy death benefit.
Though not BOLI, split dollar arrangements have reemerged which can overcome most BOLI shortcomings and allow both the bank and the executive to directly participate in and benefit from a life insurance contract.
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However, often, the beneficiary is not your spouse or other family member but rather the bank itself. Also, plans may be limited and the premium you pay might be higher (perhaps significantly) than other available options.
Always shop around for life insurance, especially term coverage.
Regulations have tightened in recent years and banks must have a legitimate reason to own life insurance on the lives of highly compensated executives of the bank. BOLI is usually set up to informally fund nonqualified benefit plans for selected executives. The executive is an insured in these policies but has no ownership interest. The executive's family not a beneficiary of the policy though the nonqualified benefit agreements may have death benefit provisions which are income taxable to them unlike a life insurance policy death benefit.
Though not BOLI, split dollar arrangements have reemerged which can overcome most BOLI shortcomings and allow both the bank and the executive to directly participate in and benefit from a life insurance contract.