Bank-owned life insurance at record levels

Bank-owned life insurance hit $120.4 billion in assets in 2007, up 15.9% from the previous year, according to Michael White Associates LLC. BOLI is a form of life insurance policy bought by banks on its directors or officers. The bank is the beneficiary of the policy and all premiums are tax-free, as is the capital appreciation in the contract, allowing the banks to fund employee benefits on a tax free basis. Large top-tier bank holding companies — those with more than $500 million in assets — reported holding $117.5 billion in BOLI assets, up 16.4% from the previous year’s figure of $101 billion. Stand-alone institutions without a bank holding company reported $2.5 billion in BOLI holdings, down slightly from $2.9 billion in 2006. Bank holding companies with assets between $1 billion and $10 billion had the highest incidence of BOLI ownership, with 315 out of 375 holding companies reporting BOLI assets. “Overall, it’s a good tax-advantaged product for the banks in terms of non-interest income and a way to cover certain liabilities for providing benefits to employees,” said Michael D. White, president of the eponymous firm in Radnor, Pa.