The only silver lining is that you should have some gains in the bond portfolio. But now what? Unless you have a robust loan pipeline, where do you go with maturing bonds or to invest the cash from loan payments?
 
Bank-Owned Life Insurance or BOLI is used by over 4,000 financial institutions with over $180 BILLION of capital invested in it. What makes BOLI so attractive?
 

• Guaranteed minimum crediting rates of 1% - 4%. You are reading that correctly.
• Current yields (after cost of insurance) of 2.75% - 3.5%, depending on purchase size and insured demographics. Tax-effect that, and it compares with some new loan rates.
• No mark-to-market risk. With general account or hybrid account BOLI, a change in market rates has zero impact on the balance sheet value.
• There are even products with an “index” crediting rate that could deliver far more yield than traditional BOLI.

 
Call or email us today. Let’s talk about the vital role that BOLI can play on your balance sheet and let us help you with the next BOLI purchase.

Despite lower corporate tax rates and a narrower spread between traditional bank-eligible investments and Bank/Business-Owned Life Insurance, BOLI continues be a powerful asset for your balance sheet. The earnings are competitive for the risk and accrue without any tax provisions. The book value is stable - rising interest rates won't result in mark-to-market adjustments like with bonds. At its core it's still life insurance and we've seen firsthand how the life insurance proceeds have provided invaluable benefits to an insured officer's family as well as to the institution.
 
BOLI crediting rates have remained somewhat stable since the beginning of 2018, and programs that deliver 3% or more yield out of the gate are readily available. While those rates have remained stable, market rates have moved generally upward even if in fits and starts. As of March 25, the 10-year Treasury bond was a mere 3 bps higher yield than the 13-week Treasury bill (with an inversion with shorter duration); the result is about 75bps-100bps of spread between 10-year Treasuries and BOLI. That's down from the historical average of over 200bps. That narrow spread has many institutions re-evaluating their inforce BOLI or delaying their next purchase of it. The thought goes that until there is greater reward for the risk of going longer, stay short.  
 
Ignoring the immediate lost earnings from staying on the sidelines, trying to time entry to the markets is challenging to say the least. What if instead of measuring your BOLI returns against fixed-income assets like bonds, you could measure them against an equity-index? Before you get too far on the ledge - we're not talking about exposing cash value to an index; cash values will always have stable book value treatment. What we're talking about is a transparent way to determine the crediting rate by measuring the change in an index, most commonly the S&P 500.
 
"Indexed Universal Life" or IUL has been available on a retail basis for more than 20 years, and in 2018 IUL accounted for almost 30% of permanent life sales. While widely available on a retail basis, it wasn't until recently that IUL became available with a single-premium, 100%-beginning-cash-value design associated with BOLI.

With IUL, the carrier offers a "floor" or minimum crediting rate (along with full book-value treatment) and a "cap" or maximum crediting rate that can flow from the change in the index.  

• If the index is negative or below the floor, your crediting rate is the floor.  
• If the index is greater than the cap, your crediting rate is the cap.  
• If the index is in between, your crediting rate is the index.

While your crediting rate from month-to-month will vary between the floor and the cap, when back-tested against 50 years of actual S&P performance, IUL has impressive results. The table below shows the current floor and cap for two carriers that offer IUL BOLI. One is decidedly more conservative than the other in its design, however, the expected rewards may be worth the "less conservative" design.

We are proud so share this amazing opportunity to learn from Scott Richardson, CEO/Founder of IZALE Financial Group, plus his remarkable team Chris Richardson, Jonathan Barnes, and Phil Aderton as to why they are the go-to BOLI experts and why BOLI is a viable solution today for financial institutions to attract, reward and retain their key talent – their most valuable asset.