The Institutional Edge

Bank-Owned Life Insurance (BOLI) and Corporate-Owned Life Insurance (COLI) represent one of the most powerful — and most overlooked — financial tools available to banks, corporations, and business owners. With over $200 billion in BOLI assets held by U.S. banks alone, institutional insurance has become a cornerstone of balance sheet management for America's largest companies.

Yet the middle market — the companies that could benefit most from these structures — remains dramatically underserved. The reason is simple: the firms that specialize in structured insurance have historically focused exclusively on Fortune 500 companies and large financial institutions. Meanwhile, community banks, regional institutions, and PE-backed portfolio companies are left navigating these complex programs without strategic advisory support.

This guide changes that. We wrote it for the bank CEO who's heard about BOLI but hasn't had a trusted advisor explain the full picture. For the PE sponsor wondering whether key-man insurance structures could improve executive retention across portfolio companies. For the business owner who knows there's a smarter way to fund post-retirement benefits but can't find someone who speaks both insurance and strategy.

At their core, BOLI and COLI are life insurance policies purchased by a company on the lives of its employees. The company is both the owner and beneficiary of the policy. But the real value isn't the death benefit — it's the tax-advantaged cash value accumulation that occurs during the insured's lifetime.

Bank-Owned Life Insurance (BOLI)

BOLI is purchased by banks specifically to offset the cost of employee benefit programs. When a bank buys 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

Corporate-Owned Life Insurance (COLI)

COLI operates on the same fundamental principles as BOLI but is used by non-bank corporations. Companies purchase COLI to fund executive benefits, key-person insurance, and post-retirement obligations. The cash value grows tax-deferred and can be accessed through policy loans to help fund benefit obligations as they come due.

COLI is particularly valuable for companies with significant deferred compensation liabilities. Without COLI, these liabilities sit on the balance sheet unfunded — creating earnings volatility and regulatory risk. With COLI, the cash value growth can be structured to track the liability, creating an economic hedge that stabilizes reported earnings.

Stable Value Protection — The Hidden Engine

One of the most important innovations in institutional insurance is Stable Value Protection (SVP). For banks and corporations with separate-account BOLI/COLI, the cash value fluctuates with market performance — which creates accounting volatility. SVP addresses this by arranging for a third-party guarantor to provide a "book value" guarantee. The guarantor agrees to make the policyholder whole if the policy is surrendered when market value is below book value.

This mechanism transforms a market-linked investment into something that behaves like a fixed-income instrument for accounting purposes, while still providing the upside potential of market-based returns. It's the reason separate-account BOLI has been able to gain market share from general-account products: institutions get higher expected returns without the accounting volatility.

Institutional insurance isn't a single-purpose tool. Below are the five applications we see most frequently among the middle-market companies, banks, and PE-backed businesses we advise.

1. Funding Non-Qualified Deferred Compensation (NQDC) Plans. Executive retention is a board-level priority for every growth-stage company. NQDC plans allow companies to promise future compensation to key executives — but without COLI, those promises are unfunded liabilities that create balance sheet drag and earnings volatility. COLI provides a tax-advantaged funding vehicle that can be structured to track the deferred compensation liability, creating an economic hedge.
2. Offsetting Employee Benefit Costs. Banks and corporations incur significant costs for group life insurance, retiree health benefits, and other employee programs. BOLI and COLI generate tax-free income that can be used to offset these costs. For community banks, the tax-equivalent yield on BOLI often exceeds what they can earn on alternative bank-eligible investments — making it both a benefit-funding tool and a balance sheet optimization strategy.
3. Key-Person and Key-Executive Protection. For PE-backed portfolio companies, the departure or death of a founder, CEO, or key revenue producer can be catastrophic to enterprise value. COLI provides both the death benefit protection and the cash value accumulation needed to fund key-person replacement and business continuity programs. This is especially relevant in lower-middle-market transactions where value concentration in individual contributors is high.
4. Supplemental Executive Retirement Plans (SERPs). Companies that want to attract and retain top-tier executives need benefit packages that go beyond qualified plans (which are subject to contribution limits). SERPs allow unlimited benefit accrual — and COLI/BOLI provides the most tax-efficient funding mechanism. The result: executives get a meaningful retirement benefit, the company gets a retention tool, and the balance sheet gets an economic hedge.
5. Balance Sheet Yield Enhancement. For banks in particular, BOLI is one of the few asset classes that provides tax-free income. In a rising-rate environment, general-account BOLI rates have become increasingly competitive with taxable alternatives. A well-structured BOLI program can meaningfully improve net interest margin and boost return on equity — particularly for community banks and regional institutions with excess capital.

The largest banks and Fortune 500 companies have been using BOLI and COLI for decades. They have dedicated treasury teams, outside consultants, and deep carrier relationships. The middle market doesn't — and the mistakes are predictable.

Mistake #1: Treating It Like a Product Purchase

Too many companies approach BOLI/COLI the same way they buy commercial insurance: get three quotes, pick the cheapest one, and move on. But institutional insurance is an architectural decision, not a commodity purchase. The choice between general account, separate account, and hybrid structures has cascading implications for accounting treatment, regulatory compliance, investment risk, and tax efficiency. Without an advisor who understands the full picture, companies routinely select products that misalign with their actual objectives.

Mistake #2: Ignoring the Regulatory Landscape

Banks purchasing BOLI must comply with OCC guidance (Bulletin 2004-56), state insurance regulations, and GAAP accounting standards. Non-bank corporations face their own regulatory considerations, including IRC Section 101(j) requirements and Dodd-Frank reporting obligations. Middle-market companies often lack the internal compliance infrastructure to navigate these requirements — and the product vendors selling the policies have no incentive to complicate the sale by highlighting regulatory complexity.

Mistake #3: No Integration with Executive Benefits Strategy

BOLI and COLI are most valuable when they're designed in concert with the executive benefits programs they're intended to fund. Yet we routinely see companies that have purchased institutional insurance without any connection to their NQDC plans, SERPs, or key-person programs. The insurance sits on the balance sheet as a standalone asset when it should be architecturally linked to the liabilities it's meant to offset.

Mistake #4: Using the Wrong Advisor

The institutional insurance market is dominated by two types of firms: large insurance carriers (who are selling their own products) and specialized product shops (who earn fees by structuring and administering specific products). Neither has an incentive to give the client unbiased strategic advice. What's missing is an independent advisory firm that sits on the same side of the table as the client — one that understands insurance, M&A, capital markets, and executive benefits holistically.

Whether you're a bank evaluating your first BOLI program or a PE sponsor considering COLI across your portfolio, the evaluation should follow a structured framework. Here's how we guide our clients through the decision.

Phase 1: Strategic Assessment

• Identify the specific liabilities or benefit obligations to be funded
• Quantify the tax-equivalent yield required to justify the program
• Assess regulatory requirements specific to your institution type
• Evaluate existing executive benefits programs and funding gaps
• Determine risk tolerance for market-linked vs. guaranteed structures

Phase 2: Program Design

• Select the appropriate structure: general account, separate account, or hybrid
• Determine the insured group (typically officers and directors for BOLI; key executives for COLI)
• Evaluate stable value protection options for separate-account programs
• Design the accounting and reporting framework
• Structure the program to integrate with existing NQDC/SERP plans

Phase 3: Carrier Selection & Implementation

• Evaluate carrier financial strength (A.M. Best, S&P, Moody's ratings)
• Compare product-specific features: credited rates, expense charges, surrender schedules
• Negotiate terms and secure board approval (required for all bank BOLI purchases)
• Coordinate policy issuance, premium funding, and initial asset allocation
• Establish ongoing monitoring, reporting, and compliance protocols

Phase 4: Ongoing Oversight

• Monitor carrier creditworthiness and policy performance quarterly
• Review program alignment with evolving benefit obligations
• Track regulatory changes that may affect program structure
• Evaluate rebalancing or restructuring opportunities as rates and markets shift
• Coordinate with tax advisors on annual reporting requirements

Centered Partners is an integrated advisory firm built at the intersection of insurance, real estate, capital markets, and M&A. We advise business owners, PE-backed portfolio companies, and institutional clients on the strategic decisions that drive enterprise value. Institutional insurance is one of many tools in our advisory framework — and that's exactly the point.

Unlike product-specific firms that earn fees by manufacturing and administering structured insurance products, Centered Partners sits on your side of the table. We don't build BOLI products. We don't administer COLI policies. We help you determine whether these programs make strategic sense for your organization, design the optimal architecture, select the right product partners, and oversee implementation and ongoing performance.

What Makes Us Different