What Is BOLI? Bank-Owned Life Insurance Explained
What Is BOLI? Bank-Owned Life Insurance Explained
Last updated: March 2026 · By Chip Smith, CEO, Centered Partners
Bank-Owned Life Insurance (BOLI) is a life insurance policy purchased by a bank on the lives of its employees, with the bank as both owner and beneficiary. BOLI generates tax-free income that banks use to offset employee benefit costs and enhance balance sheet returns. Over $200 billion in BOLI assets are held by U.S. banks today.
How BOLI Works
When a bank purchases a BOLI policy, premiums are paid from bank assets and the cash value grows tax-deferred. Upon the insured employee's death, the death benefit is received tax-free. The income earned on BOLI assets is not subject to federal income tax, making it one of the most tax-efficient investments available to banks.
Banks typically use BOLI to informally fund obligations like supplemental executive retirement plans (SERPs), deferred compensation plans, retiree health benefits, and group life insurance costs.
Three Types of BOLI
| Type | How It Works | Best For |
|---|---|---|
| General Account | Premiums go into the carrier's general investment account with a guaranteed minimum interest rate. | Conservative banks seeking stability and predictable returns |
| Separate Account | Premiums are invested in a segregated portfolio chosen by the policyholder. Cash value fluctuates with market performance. | Banks comfortable with market risk seeking higher return potential |
| Hybrid Account | Combines features of both: segregated assets with a guaranteed minimum return floor. | Banks wanting market upside with downside protection |
Why Community Banks Should Pay Attention
While 72% of banks over $1 billion in assets hold BOLI, adoption among community banks and regional institutions remains significantly lower. The reason isn't that BOLI doesn't work for smaller banks — it's that the product firms specializing in BOLI have historically focused on Fortune 500 institutions. Community banks with excess capital and unfunded executive benefit obligations are often the best candidates for a well-structured BOLI program.
BOLI is not an investment product — it's a strategic financial tool that sits at the intersection of insurance, tax planning, executive benefits, and balance sheet management. Evaluating it requires an advisor who understands all four dimensions.
Centered Partners is an integrated advisory firm that helps community banks, regional institutions, and PE-backed companies evaluate and implement institutional insurance programs. We don't manufacture BOLI products — we help you determine whether a program makes strategic sense, design the optimal architecture, and select the right product partners.
Ready to explore this further?
Schedule a confidential conversation with Centered Partners.
Book a Conversation →