Bank Owned Life Insurance in Today's Banking Environment

How does bank owned life insurance fit in today’s highly scrutinized banking marketplace?

According to S&P Global Market Intelligence, as of June 30, 2025, 76% of banks in the United States, with assets between $500 million and $10 billion, hold bank owned life insurance (BOLI).

These statistics reflect the confidence the banking industry, in general, has placed in BOLI while showing there is still margin in the market to increase its use. Despite an uncertain economy and changes over time in the banking environment, bank decision-makers appear comfortable and confident in using BOLI.

Understanding Bank Owned Life Insurance

BOLI is institutionally priced life insurance owned by a bank and typically carried on the bank’s directors or senior leadership. BOLI policies are purposefully designed for banks.

The bank is the policy owner, pays the insurance premiums and is the policy beneficiary. Although individuals must consent to be insured, the policy always belongs to the bank, even if the insured employee or board member resigns, is terminated or retires.

The use of BOLI can be highly tax efficient. Over time, the cash value of a BOLI policy grows tax deferred. As it is a life insurance product, in almost all circumstances, if the policy is held for payout until the insured’s death, the policy proceeds are paid tax-free to the bank as the named beneficiary.

Why Do Banks Buy BOLI?

A BOLI plan can offset or underwrite employee benefits for the bank’s executives, adding to the bank’s competitive appeal in attracting and retaining key talent. BOLI plans can also help fund the costs of benefit plans for employees companywide. Either approach potentially helps stabilize a bank’s workforce. A bank may also elect to share part of the policy with the insured’s family, making the policy one more valued benefit in an executive’s total rewards package.

In addition to offsetting or covering the cost of pre- and post-retirement benefits, a BOLI plan can serve as a key person insurance plan. Key person life insurance helps cover the cost of replacing a valued employee whose death could cause significant, disruptive loss to the bank’s operations or growth.

Beyond being a funding strategy, BOLI offers an investment strategy for banks. As cited in BankDirector Magazine, over the years, BOLI's financial performance has typically exceeded the after-tax returns of traditional bank investments. Adding BOLI to a bank’s collective investments can help diversify the portfolio's assets.

Banks Under Scrutiny

The 2023 failures of Silicon Valley Bank (SVB), Signature Bank and, subsequently, First Republic Bank put the banking industry under heightened scrutiny from regulators and lawmakers. As part of its response to the situation, the Federal Reserve released a self-assessment about its accountability and increased focus on banking practices.

BOLI, however, falls comfortably under regulatory guidance. In December 2004, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation collaboratively issued the “Interagency Statement on the Purchase and Risk Management of Life Insurance.” The document provided detailed guidance to banks for safe and sound banking practices when purchasing and managing BOLI.

As part of the assessment of the strategic use of bank owned life insurance, the FDIC inspires further confidence, stating, “Because the cash flows from a BOLI policy are generally income tax-free if the institution holds the policy for its full term, BOLI can provide attractive tax-equivalent yields to help offset the rapidly rising cost of providing employee benefits.”

Bank Owned Life Insurance as a Long-Term Strategy

BOLI is widely used by financial institutions as a tax-advantaged funding approach that can help offset the long-term costs of employee benefit programs while supporting overall financial management strategies. When aligned with other appropriately designed executive or director benefit plans, BOLI may also support a bank’s ability to attract, retain and reward key leadership talent.

Because BOLI programs operate within a detailed regulatory and compliance framework, careful planning, sound governance, and ongoing oversight are important. Financial institutions often work with executive benefits professionals who understand both the technical structure of BOLI and the regulatory considerations that influence how these programs are implemented and managed.

For additional information about bank owned life insurance, visit the Bank Owned Life Insurance page or contact our Executive Benefits team at executivebenefitssolutions@onedigital.com.

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