Bank-Owned Life Insurance (BOLI) refers to a financial product that banks purchase on the lives of their employees, typically key executives. The bank is both the owner and the beneficiary of the policy, meaning it pays the premiums and receives the death benefit when the insured individual passes away.
BOLI is primarily used as a means for banks to generate tax-advantaged income. The growth of cash values within these insurance policies is tax-deferred, allowing banks to enhance their profitability. In addition to providing a death benefit, BOLI can serve as a long-term investment strategy, helping banks manage their balance sheets and potentially improving their return on assets.
In the broader finance context, BOLI is relevant for risk management and employee retention strategies. It acts as an incentivizing tool for retaining key personnel, while also helping banks effectively allocate capital and optimize their financial performance.
