Banks purchase the Bank-owned life insurance (BOLI) policies to protect themselves from potential financial losses that could arise from the death of an employee with a high income or who is in a key position. The policy pays out to the bank upon the death of the insured, and this payout can be used by the bank to cover any expenses related to that individual's death, such as funeral costs or salary continuation payments.Banks typically use Bank-owned life insurance (BOLI) policies as a tax shelter, taking advantage of their tax-free savings provisions to fund employee benefits like 401(k) plans and health insurance. This allows banks to offer their employees more generous benefits while minimizing their own taxable income.While Bank-owned life insurance policies are not right for every company, they can be a valuable tool for banks looking to protect themselves from potential financial losses. By understanding how these policies work and what they can be used for, businesses can make an informed decision about whether or not purchasing one is right for them.
