Six Best Practices to Maximize Your BOLI Program’s Effectiveness

Six best practices to ensure that a BOLI program covers all the key aspects

Financial institutions are faced with constant challenges, especially when it comes to funding employee benefits. One of the big challenges is attracting and retaining key talent, and one solution is to offer more comprehensive savings options, including nonqualified plans.

Structuring a BOLI program: What You Need to Know

BOLI programs can be an invaluable and very effective tool for financial institutions seeking tax-advantaged earnings to fund nonqualified retirement solutions and other employee benefits. But with any type of financial product, issues will sometimes arise that require special attention to ensure that the purchaser is getting the most out of the asset.

Utilize these best practices for providing a BOLI program that can maximize its effectiveness:

1. Get to know the entire BOLI banking landscape. Find a provider that works with banks of all sizes and is well-versed in all types of BOLI life insurance policies. The provider also should be able to provide in-depth insurance carrier and product analysis for all BOLI product types—including general, hybrid, and separate accounts. The benefits of banks owning different types of BOLI life insurance policies include the fact that separate and hybrid insurance policies are isolated from creditors (unlike general insurance), which protects banks who take out those types of BOLI on their employees. Not all BOLI providers are created equal, as some focus on only certain aspects of the market and work with a limited number of banks and insurance carriers. Working with a provider with a keen understanding of banks of all sizes as well as every type of carrier and product can be a tremendous advantage. 
2. Understand regulatory and tax rules. Obviously, BOLI products are not as simple as savings accounts or CDs. So, understanding the rules governing these programs will require some guidance. Working with a provider who can educate the bank on BOLI-related regulatory and tax rules will lead to better understanding of risks and opportunities, and to more-informed decisions.
3. Review due diligence procedures. Many providers merely pass along the data given to them by insurance carriers without validating the information, which can sometimes lead to undiscovered inaccuracies that can cause problems and errors with financial reporting. Properly evaluate BOLI providers to assure they have adequate due diligence systems equipped to manage BOLI policy data, and that they’re reviewing the data provided by insurance carriers for errors before passing along values used for financial reporting.
4. Verify the credit quality of the issuer. A significant concern for banks is the credit quality of the BOLI issuer. It pays to verify that the BOLI insurer’s financials are sound, so choosing a provider that offers you a full array of information on carrier financials can be an important safeguard against potential credit risk. It is also important to consider an issuer’s longevity and commitment to the BOLI market.
5. Monitor market conditions and seek out upgrade opportunities. Given that market conditions are ever changing, from time to time it may be advisable to review and possibly adjust a client’s BOLI program. Having a provider that will work with you to identify possible areas for improvement in a BOLI program is another important best practice.
6. Leave the “heavy lifting” to someone else. A BOLI provider that can provide all-encompassing BOLI solutions – from portfolio design to claims processing and everything in between – can create peace of mind. 

Choosing the right provider is essential when it comes to structuring your BOLI program, and having access to in-depth data can often spell the difference between a successful program and one that sometimes falls short of its goals. You want a BOLI team that adheres to the best practices detailed above and that takes a comprehensive approach to building BOLI portfolios.

Ideally, this BOLI provider:

• Has a reputable name in the BOLI bank marketplace
• Is well-versed in all types of life insurance policies
• Works with banks of all sizes and with different types of needs
• Provides unbiased, in-depth insurance carrier and product knowledge and analysis for all BOLI product types
• Has the ability to provide education on the tax and regulatory aspects of BOLI
• Can prepare long-term cash flow/income projections
• Can provide interest-rate sensitivity testing and separate account investment analytics to ensure the product is properly positioned for current conditions
• Has a thorough due diligence process that meticulously validates the data provided by the insurance carriers for accuracy, rather than just passing the data along to the next link in the chain 
• Will collaborate closely and be there with you through the entire life cycle of the BOLI process, from the initial purchase of a BOLI program through the ultimate maturity of the asset, which can exceed 40 years
• Covers all the bases for you when it comes to enrollment and administration and other services, and offers complete outsourcing solutions, thus allowing clients to focus on their primary businesses

Partnering with a BOLI provider to fit your needs

With more than 30 years of experience and 75 BOLI professionals on staff, we’re ready to partner with you and your bank clients to help determine the optimal path forward based on each bank’s unique factors and circumstances. We work with banks of all sizes, from small to midsized to large, and can help structure programs that meet the needs of each type of financial institution. 

For more information about how Newport can help you craft the ideal BOLI solution, please contact us.