There’s a four-letter word banks don’t want you to know about. It’s not an official secret, per-say…but it’s certainly not openly shared knowledge. Ready for the big reveal? The word of the moment is:
BOLI
Bank. Owned. Life. Insurance. BOLI.
The cut and dry definition is that it’s a form of life insurance that takes out a single premium, maxed-out life insurance policy on a bank executive; someone like the president of the bank or chairman of the board. Policy amounts vary depending on each individual bank – it could be 17 million dollars or as high as 30-40 million dollars.
Not only do banks receive a fixed rate of return on their investment, this tax efficient method of investing is also a way for banks to offset the cost of employee benefits. It’s a win-win all around, and it’s completely kosher and legal.
Now that we’ve shared what BOLI is, the question is – but how does this affect you and I?
Let’s take a step back and take a look at how banks make money – with our hard-earned money, no less. One common method is by selling us a CD, or certificate of deposit. When you invest your money in a CD, you’ll receive a fixed interest rate, or rate of return for the specified amount of time until the CD itself “matures,” or reaches its lifespan/commitment period. At that point, you will receive your principal (initial amount invested) PLUS the money you made in interest over that time period.
As an example, let’s say you decide to invest $100,000 in a one-year CD with a bank and you’ll receive a return of 1.5% on your investment. The bank can then take a portion of that $100,000 and either loan it out at a higher interest rate or reinvest it at a fixed rate with an insurance company of choice as BOLI.
The current fixed rate for BOLI is 3.65%.
Time to do a recap! You invest $100,000 with the bank and they pay you 1.5% interest on your money. The bank then takes your money and reinvests it as BOLI and makes 3.65%. That’s more than double the interest they are paying you! Not only that, but BOLI is:
- Fixed rate guaranteed.
- Funds accessible at any time – with no surrender charges or penalties.
- 100% legitimate and legal.
At this point, you may be thinking – “That sounds pretty good! Can I do what the banks are doing with their BOLI and just make a straight 3.65% instead of 1.5%??”
Here’s the good news – YES! You can!
Obviously, you are an individual and not a bank, so your version of BOLI is actually called a MEC, or Modified Endowment Contract. Everything else is the same –
- A current guaranteed fixed interest rate of 3.65%.
- Safe (even if the market crashes because it is completely separate)
- Funds accessible at any time – with no surrender charges or penalties.
Plus:
- No interest due on your earnings as long as you don’t withdraw.
- Tax deferred – no taxes paid unless you withdraw
- Money left in a MEC compounds over time
AND –
- If your money is in a CD and you pass away, your heirs will only earn what is in the CD along with whatever interest has been earned.
- If your money is in a MEC and you pass away, the MEC will pay out double (sometimes more!) to your heirs – TAX FREE. Another bonus? It will bypass the unpleasant and often expensive process of probate that poaches your hard-earned money from your heirs as bureaucratic fees are leached from your assets.
- You’ll be making exponentially more money with your MEC than you would with a CD – all without dealing with taxes and surrender penalties.
Did all of that make sense? Are you ready to get your money into a safe, solid, tax-deferred, investment? We’re ready to help if you’re ready to move forward.
Click here for an upcoming webinar where we will dive deeper into BOLI and share 2 other financial industry secrets that will shock you like BOLI did. If you’ve already attended the webinar and would like to apply for a free Financial GPS Consultation, Click Here Now.
Don’t let the banks get all the return on your hard-earned money – you deserve to get the highest return possible. It’s time to enjoy life and retirement and build a solid financial legacy for your loved ones.
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