Definition of Bank Owned Life Insurance

Bank owned life insurance is a type of insurance policy in which a financial institution is named as the beneficiary, or the owner. Banks use these policies to save money on employee benefits. A bank owned life insurance account (called an insurance trust) is established so that the bank will set aside tax-free funds solely for the use of paying employee benefits in this account. All of the premiums and interest earned on such accounts are non-taxable, thus the bank saves money by providing employee benefits on a tax-free basis.


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