Bank-owned life insurance (BOLI) involves banks purchasing permanent life insurance on select key employees' lives, with the bank as owner, premium payer and beneficiary. Upon employee death, banks receive tax-free death benefits while cash values grow tax-deferred, providing stable investment returns.

With tax-deferred growth supporting long-term financial planning, BOLI policies offset employee benefit costs and improve balance sheet performance. Banks choose permanent life insurance over term coverage because cash value accumulation drives their investment strategy, but employee consent and regulatory compliance requirements apply.

Bank-owned life Insurance (BOLI) policies come in different forms, each with its features and benefits. Understanding these types can help banks select the BOLI policy that best aligns with their business goals. Banks may choose their BOLI policy type depending on the level of risk they want to take on and the financial protection they need from insurer insolvency. Here are the three main types of BOLI policies:

*Investment returns are hypothetical examples based on historical industry data and should not be considered guaranteed. Actual returns may vary significantly based on market conditions, carrier performance and policy structure. Past performance does not guarantee future results. Consult with qualified financial and legal professionals before making investment decisions.

The tax treatment of BOLI policies is one of the key reasons they are attractive to banks. Here's how it works:

• Cash Value Growth: The increase in the cash value of a BOLI policy is tax-deferred. This deferral means the bank doesn’t have to pay taxes on the policy's earnings as they accumulate over time.
• Death Benefits: Death benefits received from a BOLI policy are generally income tax-free. This provides a significant tax advantage to the bank, as it can receive a substantial amount of money without an income tax burden.
• Premium Payments: The premiums the bank pays for a BOLI policy aren’t tax-deductible. However, the tax benefits gained from the tax-deferred growth and tax-free death benefits often outweigh the lack of a tax deduction for premium payments.

BOLI insurance can be a critical component of strategic financial planning for many banks. By leveraging BOLI, banks can significantly enhance their financial and operational stability.

Implementing bank-owned life insurance requires careful planning and coordination across multiple departments. Banks typically need three to six months to complete the entire process, from initial evaluation to policy activation, depending on the bank size. Success depends on thorough preparation, proper vendor selection, and regulatory compliance.

BOLI implementation involves complex regulatory requirements that vary by state and institution size. Banks must comply with federal banking regulations, state insurance laws and internal governance policies. This information is educational only and does not constitute regulatory guidance. Consult qualified legal and compliance professionals before proceeding.

Phase 1: Planning & Evaluation

1. Evaluate insurance carrier options: Research and compare multiple BOLI carriers, focusing on AM Best ratings (minimum A– recommended), financial stability, and product offerings that match your bank’s risk profile.

2. Prepare employee census data: Compile comprehensive information on executives and employees to be insured, including ages, health status, and benefit eligibility to support accurate pricing and underwriting.

3. Determine underwriting approach: Based on your timeline and cost priorities, choose between full medical underwriting (more time-intensive but potentially better rates) and guaranteed issue coverage (faster approval but higher premiums).

4. Secure board and strategy approval: Present a detailed BOLI proposal to your board, including financial projections, risk analysis, and strategic rationale, to get formal authorization to proceed.

Phase 2: Policy Development

5. Create BOLI investment policy: Develop a written investment policy with your plan administrator covering carrier selection criteria, risk tolerance, monitoring procedures, and performance benchmarks.

6. Get carrier approval and proposals: Submit applications to selected insurance companies and receive formal offers with specific terms, pricing, and coverage details for board review.

7. Finalize employee communications: Prepare clear, compliant communications explaining the BOLI program to insured employees, including consent requirements and benefit implications.

8. Complete employee consent documentation: Collect required consent forms from each covered executive to ensure full compliance with state notification and approval requirements.

Phase 3: Implementation & Activation

9. Submit final documentation: Provide insurance companies with all outstanding forms, medical records, and administrative requirements for final policy preparation.

10. Process premium payments: Wire initial premium payments to carriers according to agreed payment schedules and policy funding requirements.

11. Receive policy issuance: Get final policies and certificates of insurance from carriers, confirming coverage is active and properly structured.

12. Begin ongoing administration: Implement monitoring and servicing procedures, establish quarterly performance reviews, and track policy values against projected returns.

These considerations are vital for employees to understand their position within the framework of BOLI policies. They highlight the need for personal insurance planning alongside awareness of the bank’s BOLI strategies.

Bank-owned life insurance (BOLI) allows banks to insure key employees as a tax-efficient way to support long-term financial goals. While the bank owns the policy and receives the benefit, covered employees don’t get direct payouts, though they may benefit indirectly through stronger benefit packages or employer stability.

For banks, BOLI can be a valuable investment and risk management tool, but it comes with regulatory and long-term planning responsibilities. Understanding these trade-offs is essential for both banks and employees navigating BOLI policies.

Below are some commonly asked questions about BOLI to help you better understand how bank-owned life insurance policies work.

Banks use life insurance as both an employee benefit and investment strategy but understanding bank-owned life insurance (BOLI) policies requires cutting through complex regulations and tax implications. We explored how BOLI works, examining which institutions can purchase these specialized products and how they differ from individual coverage. Our research covers BOLI's role in executive compensation packages, regulatory requirements, and tax advantages that make these policies attractive to financial institutions.

In addition, we analyzed and ranked the best life insurance companies to help narrow down your options when choosing individual policies that might better serve your needs.

Our Analysis Framework

We evaluated life insurance companies using five weighted categories that matter most for both business and individual decisions:

• Affordability (30%): Rate competitiveness across different profiles
• Financial Stability (25%): AM Best ratings and years in operation
• Buying Process (20%): Digital tools and payment flexibility
• Customer Satisfaction (15%): NAIC complaint data and customer review ratings
• Product Diversity (10%): Range of policy types and coverage options

Quote Collection Process

We gathered 1,488 quotes using a base profile of a 40-year-old male, non-smoker, 5'9", 160 pounds, in average health. To capture real-world pricing variations, we adjusted this profile across multiple factors:

• Age ranges and gender demographics
• BMI variations and health status categories
• Tobacco use status and geographic locations
• Term lengths and coverage amounts for different needs

Data Modeling and Market Analysis

Our data modeling identified pricing patterns across consumer profiles to project broader market trends. We focused on companies with broad national availability and online quote tools because consumers need accessible options when comparing BOLI alternatives to personal coverage.

All company information, coverage details, and pricing data reflect 2025 market conditions, ensuring you get current information to make informed decisions about bank-owned versus individual life insurance policies.