Bank-Owned Life Insurance Policy

Bank-owned life insurance (BOLI) is a type of permanent life insurance that a bank purchases on the lives of select key employees. In this arrangement, the bank owns the policy, pays the premiums, and is named as the beneficiary. When the insured employee passes away, the bank receives the death benefit — typically free from income tax. Meanwhile, the policy’s cash value grows tax-deferred, offering banks a stable, tax-efficient way to support long-term financial planning. BOLI policies are often used to offset employee benefit costs, manage risk, and improve balance sheet performance.

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

Bank-owned life insurance (BOLI) assets refer to the financial assets that accumulate within BOLI policies. These assets typically consist of the cash value or investment returns that the BOLI policies generate over time. BOLI assets are an integral part of a bank’s balance sheet, providing a steady source of income and financial stability.

Banks purchase BOLI policies for certain key employees. Understanding certain aspects of a BOLI policy can help these employees navigate their employment benefits and personal insurance needs more effectively.

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

Banks often opt for bank-owned life insurance (BOLI) policies for various strategic reasons. These policies offer financial advantages that can contribute to a bank's overall financial health. Here are some common reasons why banks invest in BOLI policies:

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.

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 does not have to pay taxes on the policy's earnings as they accumulate over time.
• Death Benefits: The 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 the burden of income tax.
• Premium Payments: The premiums the bank pays for a BOLI policy are not 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 policies offer indirect benefits to the bank employees who are covered. While the bank is the policy owner and beneficiary, the financial stability it gains from these policies can positively impact the work environment and employee benefits.

Although bank-owned life insurance policies can be beneficial, banks must also navigate potential risks associated with these investments. Understanding these challenges is essential for effective risk management. Here are some potential challenges:

In this page, we explained how 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.

Why Trust MoneyGeek?

To evaluate the life insurance market, MoneyGeek analyzed 1,488 quotes and reviewed data on customer satisfaction, financial stability, product offerings and pricing to identify the best providers for a range of needs, including specialized policies like BOLI.

Data Recency

All company and coverage data used in this analysis was updated in 2025.

How We Ranked Life Insurance Companies

MoneyGeek created a custom scoring system to compare major life insurance providers that offer broad national availability and online quote tools. Each company was evaluated across five categories using the following weightings:

• Affordability: 30%
• Financial Stability: 25%
• Buying Process: 20%
• Customer Satisfaction: 15%
• Product Diversity: 10%

Each score includes:

• Online quote cost data
• Financial strength ratings from AM Best and years in operation
• Customer complaint data from the NAIC (2020–2022)
• Availability of digital tools and payment options
• Range of policy types offered

Sample Customer Profile

Life insurance quotes were collected using a base profile of a 40-year-old male, non-smoker, 5'11", 175 pounds, in excellent health. To reflect a broader market, we adjusted this profile by age, gender, BMI, health status, tobacco use, and location. We also varied term lengths and coverage amounts for term life quotes.

Data Modeling

We identified patterns in our quote data to project broader pricing trends across different consumer profiles. These insights helped ensure a consistent and fair comparison of life insurance companies, including those offering niche or employer-related policies.