What is the difference between BOLI and a regular High cash value policy

[SamIam]

What is the difference between BOLI and a policy set up for banking? Do they get special pricing. Can someone please explain.

 

[DHK]

Whenever you see an acronym like BOLI or COLI (not STOLI though) think agreement.

Bank Owned Life Insurance has an agreement to govern the policy.
Corporate Owned Life Insurance has an agreement to govern the policy.

(STOLI is stranger owned life insurance and has no insurable interest and often illegal.)

Now, that doesn't mean that there aren't specialized policies for these things. I've heard of a Northwestern Mutual guy who does a few million a year specializing just in BOLI policies.

 

[Allen Trent]

heard of a Northwestern Mutual guy who does a few million a year specializing just in BOLI policies.

Sometimes he does that amount on 1 case. Amazing stuff

 

[Deepsea]

I always wondered why a life insurance company would accept a BOLI. Due to the fact that if everyone held their polices till death then the insurance company would be out of business. Can I assume that many Bank owned life insurance policies lapsed ?
Of course the reason life insurance don’t want investor owned life insurance policies is because those investors have a much lower lapse rate then regular individual owners.

 

[Allen Trent]

I always wondered why a life insurance company would accept a BOLI. Due to the fact that if everyone held their polices till death then the insurance company would be out of business. Can I assume that many Bank owned life insurance policies lapsed ?
Of course the reason life insurance don’t want investor owned life insurance policies is because those investors have a much lower lapse rate then regular individual owners.

I think you have some bad misconceptions about life insurance in general. Insurance companies don't automatically lose by policies being held til death/maturity/endowment nor do they win by lapses, cancelations, etc.

Also, your thoughts on reasons against investor owned are off also. Investor owned are dis liked because the investor benefits if the death occurs sooner than later, creating somewhat of a moral hazard as the policy lacked insurable interest

 

[DHK]

Here's some BOLI assets disclosed to the FDIC as of June, 2019. You can find these as a part of public record.

 

[Deepsea]

I think you have some bad misconceptions about life insurance in general. Insurance companies don't automatically lose by policies being held til death/maturity/endowment nor do they win by lapses, cancelations, etc.

Also, your thoughts on reasons against investor owned are off also. Investor owned are dis liked because the investor benefits if the death occurs sooner than later, creating somewhat of a moral hazard as the policy lacked insurable interest

I think the insurance companies would go out of business if everyone held as long as possible and had few to no lapses. The products are priced assuming a very high of lapse in life insurance. Companies don’t like and resist policies being sold on a secondary market due to impact on lapse assumptions, not so worried about “moral hazard”.

Also he lapse assumptions were wrong with a lot of long term care policies. The people in worse health and most in need of LTC were the ones that persisted. So from the insurance companies perspective there was adverse selection with LTC.

That’s my take on it.

 

[jboussea]

I think the insurance companies would go out of business if everyone held as long as possible and had few to no lapses. The products are priced assuming a very high of lapse in life insurance. Companies don’t like and resist policies being sold on a secondary market due to impact on lapse assumptions, not so worried about “moral hazard”.

Also he lapse assumptions were wrong with a lot of long term care policies. The people in worse health and most in need of LTC were the ones that persisted. So from the insurance companies perspective there was adverse selection with LTC.

That’s my take on it.

You do realize that as statisctics change , life insurance can change their pricing... and they can of course change waht they assume to be the lapse rate if they see a trend going that way.

Regardless, I think you're probably overestimating how much people holding on to their policies would affect the life insurance carriers... it may affect their return on investment but without looking at any numbers in particular, I still think they would probably yield a return ..(keep in mind a trend downward is still alarming for life insurance companies) ...

 

[phoenixlord]

I think the insurance companies would go out of business if everyone held as long as possible and had few to no lapses. The products are priced assuming a very high of lapse in life insurance. Companies don’t like and resist policies being sold on a secondary market due to impact on lapse assumptions, not so worried about “moral hazard”.

Also he lapse assumptions were wrong with a lot of long term care policies. The people in worse health and most in need of LTC were the ones that persisted. So from the insurance companies perspective there was adverse selection with LTC.

That’s my take on it.

Beautiful! You hit the nail right on the top. Now, you know why the insurance companies aggressively promote IULs because they have the highest lapse rate. Industry needs more agents who speak the truth and do good for the clients. Moral hazard? Good one, Trenty!

 

[DHK]

Beautiful! You hit the nail right on the top. Now, you know why the insurance companies aggressively promote IULs because they have the highest lapse rate. Industry needs more agents who speak the truth and do good for the clients. Moral hazard? Good one, Trenty!

You sure have an ax to grind! This thread had NOTHING to do with IUL.

I believe that BOLI is all whole life contracts. In fact, there are specific parts of the tax code that are ONLY available for whole life - such as life insurance in a qualified plan. It's specific to whole life.