Facing an issue that is not uncommon today, a bank incurred an 8.9% increase in its health insurance premiums. Because of lower margins and a low-yield environment, the bank passed all of the increased expenses to its employees. The bank was unable to compete in its market for top talent with this short-term solution and also incurred the risk of losing some of its key employees.
The bank was forced to think creatively of ways to offset these increased expenses and, therefore, looked to purchase BOLI on key officers. The cash value yield on BOLI provided better incremental income than what was otherwise available in the market (ie: 2% pre-tax yield), which indirectly helped to offset the increased health insurance expenses.
The bank no longer intends to pass the increased healthcare expenses to its employees and also lessened the financial impact of this increased expenses to the bank. As an additional strategic byproduct of the BOLI, the bank provided a Supplemental Life Insurance Plan which saved the bank some expense of its group term insurance and decreased the amount of imputed income the officers had to recognize on their W-2’s.
BOLI offers a creative solution to offset the cost of increased healthcare expenses, it reduces the expense of group term life insurance premium for the employer and it provides lower imputed income for all officers. Win- win- win!
For more information on COLI / BOLI uses, please contact Executive Benefits Network.