Articles

Tax Equivalent Returns Using BOLI

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. 


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Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Fiduciary consulting services are provided through Newport Group Securities, Inc., an SEC-registered investment adviser and FINRA-registered broker-dealer, and InterServ, LLC, an SEC-registered investment adviser. Newport Group Securities, Inc. and InterServ, LLC are affiliates of Newport Group, Inc. All securities transactions are provided through Newport Group Securities, Inc., in its role as broker-dealer. All fiduciary consulting services are provided through the registered investment adviser. when offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer.
Trust and custody services provided by Newport Trust Company, a New Hampshire state chartered trust company and wholly owned subsidiary of Newport Group, Inc.