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Do Banks Buy Life Insurance?
Do banks buy life insurance? Yes – but usually only for their executive employees. If you’re trying to sell your existing policy, in a process referred to as a life settlement, banks are not usually involved in that process. We’ll go over both types of purchases below.
Bank-Owned Life Insurance
National banks do buy life insurance for their key employees, such as C-suite executives. These polices are called “bank owned life insurance,” or BOLI. These key employee policies function the same way they would for any other employer. The employer purchases the policy and designates the company as the beneficiary. If the key employee passes away, the company receives the cash death benefit.
Key Person Policies
Key person policies protect companies from financial harm if anything happened to their most valuable employees. For example, a bank’s director, CEO, or CFO may have the kind of knowledge and business relationships it would be difficult to replace. The death benefit is intended to tide the business over while searching for a replacement in the event of their untimely death.
These are almost always permanent policies, rather than term policies, which means they grow cash value. With a permanent policy, a portion of every premium payment goes into the cash value account. The insurer also credits that account with interest. The amount of interest paid will depend on the policy type and the insurer’s stipulations. The longer you hold the policy, the more your cash value grows.
That cash value is what makes these policies so attractive to banks. Cash value is a financial asset that can serve as a stable, guaranteed hedge to a bank’s riskier investments and help banks meet requirements for the amount of capital they need to have on hand. Banks can use that cash value as security for loans. It’s also helpful to offset the cost of providing employee benefits. In fact, as of June 2023, 3,153 banks in the U.S. reported having cash value assets – a total of $184.6 billion. (Source: BoliColi.com)
So, the answer to the question “do banks buy life insurance” is yes. However, if you’re asking about a situation where a bank might buy a non-employee’s life insurance policy, the answer is almost certainly no. We’ll go over this situation – called a life settlement – below.
Want to talk to someone about your life insurance situation? That’s why we’re here! Call us at (800) 521-7873 and ask us all your questions. Or get started with a free term life quote – just click the button below!
Life Settlements
If you no longer need your life insurance policy, there’s a possibility you could sell it. This is a very niche market in which investors buy an existing policy in anticipation of receiving the death benefit when the insured person passes away. They pay the insured person a sum of money and take over the policy’s payments, also becoming the policy’s new beneficiary. When the insured person passes away, the new owner files a claim. No money is available for the deceased person’s loved ones or original beneficiary(ies).
In most cases, these buyers are institutional investors. Some are looking for a payout sooner rather than later. This means elderly or terminally ill policyholders are often candidates for this type of sale. Others bundle the policies they’ve purchased and sell whole or partial interest in them to other institutional investors.
Do banks buy life insurance settlements? Possibly, if they’ve invested in bundled settlement policies. But these will be sold institutionally, by licensed and registered securities brokers. Banks will not buy life insurance from an individual looking to sell their policy.
Your state’s Insurance Commissioner may have specific rules for life settlements. If you have a policy you no longer need or can’t afford, a life settlement is an option – but not your only option, as we’ll explain below.
Want to talk to someone about your life insurance situation? That’s why we’re here! Call us at (800) 521-7873 and ask us all your questions. Or get started with a free term life quote – just click the button below!
Another Option for Unneeded Policies
If you’re asking “do banks buy life insurance” with the intent of selling your policy, life settlements aren’t your only answer.
If you have a policy you no longer need or cannot afford, the easiest option is to simply cancel it with your insurer. This is especially important if you have a permanent policy with cash value. If you just stop making payments, that’s not the same as canceling a policy. If you stop paying, the insurer will consider your policy lapsed, which means all benefits (like any cash value you’re entitled to) are forfeit.
If you contact your insurer and cancel your policy through them, you are entitled to any cash value in the policy, minus any surrender fees. This transaction is straightforward and fast.
Considerations
- What is the life settlement company offering to pay you? Is it a fair price? Is it more than the surrender value (minus any fees)? You may need to call your insurer and ask how much you’d receive if you simply surrendered the policy in order to make an accurate comparison.
- Is the life settlement investor a reputable person or company? You can search for them online, or check your state Insurance Commissioner’s website.
- Are you on a tight time-frame in terms of needing money from the sale? If you’re dealing with a life settlement company, ask about the time frame for a sale. Variable policies are regulated by the SEC due to their investment component. If you have a variable life policy, there may be extra paperwork involved that prolong the process.
Want to talk to someone about your life insurance situation? That’s why we’re here! Call us at (800) 521-7873 and ask us all your questions. Or get started with a free term life quote – just click the button below!
What If You Still Need Coverage?
If you can’t afford your policy but still need coverage, we can help you find a less expensive option!
Tell us what your budget is, and we’ll help you compare different coverage amounts with different carriers. Don’t cancel your existing policy first. Talk to us, and keep that policy in place until we decide your best course of action.
We have options that can keep you covered for less cost:
- New term policy with decreased face value. Term policies are the most affordable policies out there. By adjusting the term length and face value, we can find a policy that keeps some coverage in place for your loved ones. Let’s ease your financial burden without leaving them unprotected.
- Final expense coverage. Just want to leave behind enough to cover funeral and burial expenses? Final expense is permanent coverage tailor-made for your situation.
- Guaranteed issue coverage. If you’ve developed health problems since you bought your policy, we can look into options that guarantee you’ll be accepted.
Want to talk to someone about your life insurance situation? That’s why we’re here! Call us at (800) 521-7873 and ask us all your questions. Or get started with a free term life quote – just click the button below!
