Why Do Banks Own So Much Life Insurance?
Banks, like all other businesses, are in the business of making money. Except the service they provide is handling your money. They give you a safe place to hold your money, make it convenient for you to spend your money (checks and debit cards), charge you here and there for the privilege (ATM withdrawal fees, overdraft charges, and monthly charges if you don’t maintain a minimum balance), but they make most of their profits taking the money you entrust with them and investing it—through mortgages, student loans, car loans, etc.
But that’s not the only investment they’re making. In fact, banks put billions (yep, that’s billions, with a B) of dollars into whole life insurance policies like insurance contracts. Because banks are federally regulated and insured through the Federal Deposit Insurance Corporation (FDIC), and the FDIC is a federal agency, banks are required to disclose their financials.
If we look at the balance sheet for the four biggest banks in the United States, which separates their holdings into asset classes, we can see how much bank-owned life insurance each of these banks owns compared to one other asset (real estate):
Bank Asset Classes
To look up banks on your own, go to the FDIC’s website’s institution search at https://www7.fdic.gov/idasp/advSearchLanding.asp. Enter the name of the bank you want to look up under “Institution Name,” and click “search,” which is a blue button underneath. This will give you a list of banks. Click on the Cert number highlighted in blue to the left of the name of the bank you searched. Then click on the “Generate Report” button in the baby-blue bar on the right side. There it is.
Why is it that these four banks alone have almost $60,000,000,000 (sixty billion dollars) in bank-owned life insurance? Because banks understand how money works.
Banks understand that an insurance contract comes with many benefits over other kinds of investments, including the following:
The cash value of an insurance contract grows tax free (as long as you use it a certain way)
The cash value of an insurance contract is liquid
The cash value of an insurance contract is protected against market fluctuations
The cash value of an insurance contract grows with a competitive, compound, interest rate
The insurance contract pays competitive dividends on top of the compounded interest
The insurance contract has virtually no contributions limits
When the insured (a bank executive or key person) dies, the death benefit goes to the bank tax free
There is nothing preventing consumers from creating an insurance contract for themselves. In fact, there are more reasons for an individual to use this than a bank, including the fact that if written correctly, an insurance contract comes with other benefits than just the investment opportunities, including long-term-type coverage for terminal or chronic illnesses.
There is no risk or cost to finding out what an insurance contract would look like in your situation. Contact our team, and we would be happy to put together a custom plan at no risk, cost, or obligation to you.