What if the CEO of an $18 billion institution walked in your door and asked to borrow a million dollars for working capital?

What if the hypothetical company’s assets consist almost entirely of government bonds, mortgages and high grade corporate bonds. Due to their 130+ year history, strong capital position, balance sheet and stable earnings, Moody’s, AM Best and S&P rate them in the top 10 percent in credit quality for similar companies. They would adjust the interest rate at least annually to keep your loan rate in line with market rates. Due to the unique nature of the loan, there would be no required loan loss reserve accrual or servicing requirements. And, should you ever be concerned about credit quality, you could demand payment at any time. 

Does this scenario sound too good to be true? It’s not. What I am describing is not actually a loan, but is in fact business-owned life insurance (BOLI). The transaction is shifting lower yielding investments to BOLI and using the potential increase in income to offset and recover expenses of employee benefits programs such as benefits pre-funding, 457(f) plans, and split-dollar life insurance.

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