BOLI: A STRATEGIC ASSET FOR BANKS
Bank Owned Life Insurance
From large financial institutions to community banks, BOLI offers a tax-advantaged investment strategy to help offset employee benefits costs.
Tax-deferred. Balance sheet friendly. Reasons why banks use BOLI.
With a Bank Owned Life Insurance policy, the bank is both the policy owner and beneficiary. The insured is often a highly compensated executive, although a bank may purchase insurance for other consenting employees. When a bank insures 10 or more employees, it may qualify for Guaranteed Issue (GI) status, which eliminates the need for medical underwriting.
A well-designed BOLI policy can informally cover the costs of executive benefits and retention plans. BOLI policies can also finance other programs, helping underwrite employee benefits expenses throughout the company. Some banks choose to share death benefits with the insured’s designated beneficiary, making the policy an additional executive benefit. Banks may also set aside policy proceeds to cover recruiting and transition costs after a key employee’s death.
A BOLI policy’s cash surrender value (CSV) grows tax-deferred over time, providing the bank with monthly bookable income. Benefits are generally tax-free if the bank holds the policy until the insured’s passing. A BOLI policy is considered “noninterest income” for accounting purposes. It is recorded on the balance sheet as “other assets,” and its yields and proceeds are recorded as “other income.”
Bank investments trend towards Treasury and Municipal bonds. Adding BOLI helps diversify a bank’s investment portfolio and can potentially minimize risk. Regulatory guidance and risk management processes for Bank Owned Life Insurance are clearly defined, which is especially important in banking today. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) provide clear expectations for risk management, concentration limits and ongoing monitoring.
While Bank Owned Life Insurance is widely used by financial institutions, both as an investment strategy and a way to fund or cover benefits costs, bank CFOs, Directors and other key decision makers will want to know and understand BOLI’s associated disadvantages and risks.
Bank CFOs and Directors Rely on BOLI
*Data as of June 30, 2025. Source: S&P Global
2,963
Banks nationwideReported BOLI cash surrender values on their regulatory filings.
76%
Of U.S. banksWith assets between $500M and $10B own BOLI.
$208.6
BillionIn BOLI cash value on bank financial statements today.
LONG-TERM STABILITY
Regulatory guidance and oversight of BOLI are clearly defined.
For more than 40 years, banks have used BOLI as a reliable asset to help manage employee benefits costs. Throughout ups and downs in the economy, well-structured BOLI plans have provided an effective strategy for offsetting the costs of executive benefits.
CUSTOMIZED PEER ANALYSIS
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Facts about BOLI
The OneDigital Executive Benefits team is committed to delivering knowledgeable, attentive and customized service to banks, credit unions and other public and privately held organizations. We are focused on helping your company realize its objectives while efficiently supporting the rewards, retention and benefits needs of your valued employees.
BOLI is a life insurance policy purchased by a bank on the lives of eligible employees, with the bank as both owner and beneficiary.
A BOLI policy’s cash value grows tax-deferred, positioning banks to use it for underwriting the costs of employee benefits programs.
When properly structured and managed in accordance with regulatory guidance, BOLI can be a prudent and tax-efficient asset for banks of all sizes.
BOLI policies typically generate a tax-deferred return through growth in the policy’s cash value, which may provide banks with stable, long-term earnings.
Yes, BOLI programs must comply with Interagency guidance, including the OCC 2004-56 Interagency Statement that outlines safe and sound practices, risk management and ongoing monitoring requirements.
The increase in cash surrender value (CSV) is recorded as nontaxable income on the bank’s income statement, while the policy’s value appears as an asset on the balance sheet.
The bank typically retains ownership of the policy even after an insured employee departs. Some banks choose to share a portion of the death benefit with the former employee’s beneficiary as part of a benefit arrangement.
BOLI has been used by U.S. banks for over 40 years as a consistent methodology to help offset employee benefits expenses and potentially enhance long-term financial performance.
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