$20B+
reconciled monthly
0.001%
CARS™
accuracy
150M+
transactions audited
What Is BOLI?
A Long-Term Asset With Strategic Purpose
BOLI (Bank-Owned Life Insurance) is more than just a financial product—it’s a long-term asset strategy that helps banks offset employee benefit costs while earning tax-advantaged returns.
What does BOLI mean?
BOLI stands for Bank-Owned Life Insurance. It’s a type of permanent life insurance policy purchased by banks on key employees. The bank owns the policy, pays the premium, and is the beneficiary. When structured correctly, BOLI provides benefits.
Banks often use BOLI to offset future employee benefit obligations—such as healthcare or retirement liabilities.
Tax-deferred growth of cash value
Tax-free death benefit proceeds
A valuable balance sheet asset with strong timing symmetry
How Does BOLI Work?
BOLI policies follow a clear lifecycle:
Policy Purchase
Banks purchase permanent life insurance on selected employees (with written consent), often using carriers with strong credit quality. Regulations require rigorous due diligence, including board approval and employee consent.
Cash Value Accrual
Over time, the policy accumulates cash value. This grows tax-deferred and is treated as an asset on the bank’s balance sheet. Growth can help offset the rising cost of benefits.
Policy Purchase
Banks purchase permanent life insurance on selected employees (with written consent), often using carriers with strong credit quality. Regulations require rigorous due diligence, including board approval and employee consent.
Earnings Impact
BOLI is accretive to earnings—especially in low-yield environments. Banks report changes in policy value in quarterly call reports.
Death Benefit
Upon the insured employee’s passing, the bank receives a tax-free death benefit. Depending on the mortality design, this may result in a direct P&L gain or be offset against the policyholder-owned reserve.
RFPs Built for the Long Term
Our structured RFP process is built to serve decades—not just deals. We create competitive environments that align with your goals, driving better pricing, stronger terms, and greater policy flexibility from the start.
That foundation extends into long-term stewardship. From administration to compliance and optimization, we remain engaged—so you can focus forward, knowing the details are handled with care and precision.
Independent guidance.
Precision execution.
Long-term clarity.
What Types of BOLI Are There?
General Account (GA BOLI)
- Assets held in insurer’s general account
- No P&L volatility
- Limited transparency
- Bank has no control over investment strategy
Separate Account (SA BOLI)
- Assets held in a segregated account
- Offers more transparency and control
- Marked to market (can create P&L volatility unless wrapped with Stable Value Protection)
Hybrid BOLI
- Combines elements of GA and SA
- Limited control over allocations
- Offers guaranteed crediting rate with reduced risk
FAQ
With careful structure, BOLI becomes a tool for managing liabilities, enhancing earnings, and reducing risk exposure across decades.
MB Schoen brings decades of institutional insight to help you understand BOLI/COLI not just as insurance—but as a strategic balance sheet asset.
Separate Account (SA BOLI)
COLI (Corporate-Owned Life Insurance) is similar to BOLI but is used by corporations (non-banks). The key difference lies in purpose:
- BOLI offsets general employee benefit liabilities
- COLI typically funds executive compensation or non-qualified plans
Banks may use both BOLI and COLI depending on their needs.
Why Do Banks Use BOLI?
Banks face rising costs for employee benefits. BOLI helps:
- Offset future liabilities with tax-efficient assets
Improve balance sheet strength - Generate earnings through deferred growth
As of 2024-Q2, U.S. banks collectively hold over $225 billion in BOLI.
Who Can Be Insured Under BOLI?
Federal and state regulations allow banks to insure employees only if they meet "highly compensated" definitions and provide affirmative written consent.
Eligible employees typically include:
- Officers
- Directors
- Senior executives
Key BOLI Features You Should Know
Stable Value Protection (SVP)
SVP shields Separate Account BOLI from daily market volatility by ensuring book value accounting. It’s essential for banks seeking consistency in earnings.
MEC vs. Non-MEC
Policies may be structured as Modified Endowment Contracts (MECs) or not. This affects liquidity, tax treatment, and death benefit.
Mortality Design
Plans may be:
- Experience-rated: Reserve belongs to bank, more stable earnings
- Pooled: Carrier holds reserve, can result in higher earnings spikes at death
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Split Dollar Designs
Some BOLI policies include a Split Dollar component—paying part of the death benefit to employee heirs. This adds complexity and must be structured with caution.
What is BOLI in simple terms?
BOLI is life insurance that a bank buys on key employees. The bank gets the payout when the person dies and uses the policy to help cover long-term employee benefit costs.
How does BOLI benefit a bank?
It earns tax-deferred income, offsets liabilities, and can strengthen financial statements.
Who is typically insured under BOLI?
Usually officers or senior employees who provide written consent.
Is BOLI safe?
Yes, when properly structured. It’s subject to regulatory review and typically uses highly rated carriers.
What’s the difference between BOLI and COLI?
BOLI is for banks. COLI is for corporations. BOLI usually funds broader benefit costs, while COLI supports executive plans.
How do I know if BOLI is right for my bank?
We recommend a structured analysis of your benefit obligations, current investment strategy, and risk profile.