Life Insurance is a bad investment???
Updated: Nov 16, 2020
There's quite a bit of financial noise in the world today. With talking heads spouting "Buy Term Insurance only!" and others suggesting to only do something else. It leaves many wondering who is right, who is wrong?
Let's dive in for a moment to look at the real world. If anyone says Life Insurance is a bad investment, it will reveal how misinformed they are. This will include anyone you've heard radio, podcasts or seen on TV screaming how Life Insurance is bad, bad, bad. We need to ask ourselves if the banks feel the same.
Many mutual fund, and qualified plan pundits declare to the world how the consumer should stay away from Permanent Life Insurance. What's their motive? What do they know that Banks and Corporations do not? Let's see how wrong the pundits are.
There are a few different types of permanent life insurance products. However, when conducting a comparison you'll notice these so-called experts never, and I do mean, never explain or include in their discussion the topic of Bank-Owned Life Insurance Also known as BOLI. In fact, if you simply conduct an internet search: What is Bank Owned Life Insurance? You'll discover quite a bit about this rarely discussed subject.
But the question is, can this strategy be used by the average consumer? We at Andrews Financial Services LLC answer, Yes, it can! We'll explain to you below.
But first, let's understand that Banks use and employ a plethora of strategies to build and preserve their own assets. This isn't news, yet, it's clearly evident the general public is unaware of how many banks utilize BOLI in their economic strategy.
But why would they use this? Is it for the non-taxed component? Well, partially. You're about to discover, it's not just banks. Banks, credit unions, and corporate entities require a level of planning that will help them balance their assets while attracting, retaining, and rewarding top‐tier talent to contribute their growth and profitability.
Finding the right balance is critical, and they have firsthand knowledge of the most current products and product costs. Bank Owned Life Insurance (BOLI) and Corporate Owned Life Insurance (COLI) plans are generally described as life insurance that a bank or corporation owns or has an interest in. BOLI and COLI plans are used by financial institutions and companies to offset either a specific executive benefit plan (i.e. a split-dollar plan or SERP) or to fund all employee benefit plans in aggregate.
For either purpose, life insurance when held to maturity offers the most efficient way to fund these liabilities as BOLI and COLI provide an attractive tax‐equivalent yield to help offset the ever‐rising costs of employee benefits. BOLI is the most popular funding tool utilized by banks to fund employee benefit plans, with more than half, yes, you saw correct.
With more than HALF of the financial institutions in this country owning BOLI on their balance sheets. It is not uncommon for banks to invest 10% ‐ 25% of their Tier 1 Capital in BOLI. BOLI is a permissible asset under the I.R.S code. The law provides extensive pre-purchase and post-purchase guidance to mitigate risks associated with this purchase.
While BOLI is an effective financing tool to offset employee benefit costs and provides incremental income to a bank’s bottom line, it also can also provide benefits to retain and reward key executives and directors.
For example, the death proceeds from the life insurance can be shared with executives to designate to their own beneficiaries, thereby giving a significant benefit to executives.
So the next time someone exclaims "Life Insurance is a bad investment!" It may be ideal to turn a deaf ear. In fact, we would encourage it. Using Life Insurance as a retirement vehicle is also available for consumers like you desiring a Non-Taxed aka ( A Tax Advantaged option) that has the potential to be a greater planning tool when compared to a Roth, IRA, 401k, 403b, etc... Remember, this is merely an option to include in your portfolio.
Ask yourself, "how much of my retirement portfolio do I want to be non taxed?" Now you're next step is to discover how to implement a Life Insurance Retirement Plan option for you, your family or business.
Let's have a higher level discussion to discover the options the may exist for your specific situation. After all, there is no such thing as a financial cookie strategy for all people.
Michael Andrews is the Founder and Managing Partner of
Andrews Financial Servives LLC