Oct 26, 2017
Is your bank earning 6% on excess capital?
A typical
bank-owned life insurance (BOLI) transaction today would result in a tax equivalent yield in excess of 6% (depending on carrier, product type, premium amount, and tax bracket).
How is that possible? A BOLI purchase is estimated to result in the following after-tax equivalent returns.
| Period |
Annual Yield |
Tax Equivalent Yield
(40% Tax Bracket) |
Tax Equivalent Yield
(25% Tax Bracket) |
| Year 1 |
3.75% |
6.25% |
5.00% |
| Year 5 |
3.17% |
5.28% |
4.23% |
| Year 10 |
2.94% |
4.90% |
3.92% |
| Life of Plan IRR |
3.68% |
6.13% |
4.91% |
Assumes a purchase in excess of $30M and mortality 80.
Actual results will reflect timing of the transaction, premium size and the demographics of the insured group.
BOLI has consistently provided comparatively high tax equivalent returns compared to alternative investments.
Owners of BOLI typically provide excellent feedback and acknowledge that the asset is one of the top performing assets on the bank’s balance sheet.
BOLI can be purchased to fund a specific employee benefit, or more frequently, can be used as a cost offset to broad-based employee benefit expenses, such as health care, 401(k) match, profit sharing, etc.
For more information on potentially increasing your bank's returns with BOLI, please fill out the form below.