With banks still fighting for good spreads and the threat of rising interest rates looming does annual pay BOLI make sense? Banks have been using BOLI for over thirty years as an effective tool for offsetting employee benefit expenses. Most institutions use a Single Premium Modified Endowment Contract (MEC) product to maximize returns. MECs are taxed on a LIFO basis and are subject to a 10% penalty tax. Non-MECs, are taxed on FIFO basis and are not subject to the penalty tax or MEC Aggregation rules.
Annual Pay BOLI requires a lower initial outlay spread out over a number of years. They are usually designed for a five to seven year funding plan. The advantages can be numerous for a number of reasons. The ability to change insureds without triggering a 10% penalty or a large tax due to MEC aggregation rules make these types of programs attractive to many institutions. Lower financial outlay and flexibility make this worth looking into.
For more information on this idea, please contact a consultant at Executive Benefits Network.