Glossary term
Bank-Owned Life Insurance (BOLI)
Bank-owned life insurance is life insurance a bank purchases and owns, often to help finance employee benefit obligations.
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What Is Bank-Owned Life Insurance?
Bank-owned life insurance, or BOLI, is life insurance purchased and owned by a bank, usually on the lives of certain employees or executives. The bank is typically the policy owner and beneficiary, and the policy's cash value is carried as an asset on the bank's books.
BOLI is commonly used by banks to help finance employee benefit costs or other long-term obligations. It is not a consumer deposit product and is not the same as a life insurance policy an individual buys for family protection.
Key Takeaways
- BOLI is life insurance owned by a bank, not by the insured employee.
- Banks may use BOLI to support employee benefit financing and balance-sheet planning.
- Regulators expect banks to manage BOLI with board oversight, risk limits, and pre-purchase analysis.
- BOLI creates liquidity, credit, legal, tax, and operational considerations for the bank.
How Banks Use BOLI
A bank may pay premiums into a life insurance contract and receive tax-advantaged cash value growth under applicable rules. If the insured person dies while the policy is in force, the bank may receive a death benefit.
Feature | Typical BOLI Treatment |
|---|---|
Policy owner | The bank owns and controls the policy. |
Insured person | Usually an employee, officer, or director whose life is insured. |
Beneficiary | The bank is commonly the beneficiary. |
Financial purpose | Often used to help offset benefit obligations or other long-term costs. |
Bank Risk Management
Federal banking regulators have issued guidance on safe and sound BOLI practices. Banks are expected to understand the product, analyze risks before purchase, monitor the holding over time, and keep policies within appropriate limits.
Important risks can include insurer credit quality, surrender charges, liquidity needs, interest-rate sensitivity, tax assumptions, legal requirements for insuring employees, and concentration in one carrier or product type.
What It Means for Consumers
BOLI usually matters to consumers indirectly. It can appear in bank financial statements as a bank-owned asset. It does not insure customer deposits, and it does not change FDIC deposit insurance limits.
For employees, BOLI can raise consent and disclosure questions depending on the policy and applicable law. For bank investors or analysts, BOLI can affect noninterest income, assets, and risk-management review.
The Bottom Line
Bank-owned life insurance is an institutional life insurance strategy used by banks. Its value depends on disciplined risk management, not on the fact that it is life insurance.