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Banks own billions of dollars in life insurance.
Large corporations do too.
Yet most people have never heard of Bank-Owned Life Insurance (BOLI) or Corporate-Owned Life Insurance (COLI) until they begin researching advanced financial strategies. That often leads to questions like:
The answers reveal something interesting.
Some of the world’s most financially sophisticated organizations intentionally use permanent life insurance as a balance sheet asset. They aren’t buying these policies for the death benefit. They’re buying policies because properly structured life insurance offers a combination of tax advantages, liquidity, stability, and long-term financial efficiency that few other assets can match.
Understanding how BOLI and COLI work not only explains why banks and corporations use them—it also provides insight into why many successful business owners and families choose participating whole life insurance as part of their own financial strategies.
Bank-Owned Life Insurance (BOLI) is a permanent life insurance policy purchased by a bank on the life of a key executive or employee. The bank owns the policy, pays the premiums, controls the cash value, and receives the death benefit.
Corporate-Owned Life Insurance (COLI) works the same way, except the owner is a corporation instead of a bank. The business purchases life insurance on selected employees or executives to help fund long-term obligations, protect against financial loss, and improve tax efficiency.
Both strategies allow organizations to accumulate tax-advantaged cash value while providing tax-free death benefits under current tax law when all applicable requirements are satisfied.
A BOLI policy is a permanent life insurance policy purchased by a bank on the life of one or more key employees, executives, or directors. The bank owns the policy, pays the premiums, builds cash value inside the policy, and is generally the beneficiary when the insured employee dies.
Unlike personal life insurance, the purpose of BOLI is not to provide financial security for the employee’s family. Instead, BOLI is an institutional financial asset designed to strengthen the bank’s balance sheet and help offset future financial obligations.
Banks commonly use BOLI to:
Although the insured employee must receive notice and provide consent before coverage is issued, the policy belongs to the bank—not the employee.
When people search for “what is BOLI insurance,” they’re usually referring to this institutional use of permanent life insurance.
BOLI insurance policy is generally a cash value life insurance policy issued on the life of a bank executive or other eligible employee. Because these policies accumulate cash value on a tax-deferred basis and generally pay income-tax-free death benefits, they have become an important asset class for many financial institutions.
Unlike many traditional investments, BOLI combines:
For banks managing billions of dollars in assets, these characteristics can make BOLI an attractive component of their overall financial strategy.
COLI stands for Corporate-Owned Life Insurance.
Like BOLI, COLI is a permanent life insurance policy purchased on the life of selected employees, executives, business owners, or other key personnel.
Instead of a bank owning the policy, a private company or corporation owns it.
The corporation:
Because of these ownership rights, COLI is considered a corporate asset rather than an employee benefit.
Many people ask, “What is COLI insurance?”
The simplest answer is this:
COLI insurance is life insurance owned by a corporation on key employees to help strengthen the company’s financial position and fund long-term business obligations.
Corporations frequently use COLI to:
Properly structured COLI policies can provide significant financial flexibility while remaining compliant with IRS regulations.
The terms Company-Owned Life Insurance, Corporate-Owned Life Insurance, and Employer-Owned Life Insurance (EOLI) are often used interchangeably, but they are not always identical.
Here’s a simple breakdown.
Company-Owned Life Insurance is a broad term describing any life insurance policy owned by a business.
Within that category are several specialized forms:
Not every company-owned policy qualifies as COLI, but every COLI policy is a form of company-owned life insurance.
Employer-Owned Life Insurance (EOLI) is the legal term used within the Internal Revenue Code for life insurance owned by an employer on an employee.
The IRS established specific notice, consent, and reporting requirements for these policies to ensure they are used appropriately.
Many COLI policies fall under the broader EOLI rules.
Throughout this guide, you’ll see the terms COLI, company-owned life insurance, and EOLI used together because they are closely related and frequently searched together.
Although they share many similarities, BOLI and COLI are designed for different types of organizations.
| Feature | BOLI | COLI |
| Owner | Bank | Corporation |
| Primary Users | Commercial banks, community banks, savings institutions | Private companies, corporations, closely held businesses |
| Insured | Executives, directors, key employees | Executives, owners, key employees |
| Premiums Paid By | Bank | Corporation |
| Cash Value Owner | Bank | Corporation |
| Death Benefit Paid To | Bank | Corporation |
| Primary Purpose | Offset employee benefit costs, strengthen capital, improve earnings | Offset benefit costs, protect against financial loss, improve tax efficiency |
| Governing Oversight | OCC, FDIC, banking regulators | IRS, Internal Revenue Code |
At a high level, BOLI and COLI operate almost identically. The primary distinction is simply who owns the policy.
Banks use BOLI.
Businesses use COLI.
The underlying life insurance principles remain largely the same.
Many people search phrases like:
These searches usually indicate someone wants to understand how the two concepts relate.
The reality is that BOLI and COLI are two versions of the same institutional strategy.
The primary difference is whether the owner is a regulated financial institution or another type of business.
One of the biggest misconceptions about BOLI insurance and COLI insurance is that organizations purchase these policies simply because they’ll eventually receive a death benefit.
But, that’s only one piece of the picture.
Banks and corporations view permanent life insurance as a long-term financial asset that can help improve their balance sheets, generate tax-advantaged growth, manage future liabilities, and create a source of liquidity. The death benefit is important, but many organizations place just as much value on what the policy does while the insured is still living.
Understanding this shift in perspective is the key to understanding why BOLI and COLI have become such widely used institutional financial tools.
Banks operate in one of the most highly regulated industries in the world. Every asset they own is evaluated for risk, liquidity, long-term stability, and regulatory compliance.
When banks purchase Bank-Owned Life Insurance (BOLI), they’re making a deliberate financial decision based on those same criteria.
Rather than viewing life insurance as merely an expense, banks recognize that a properly structured permanent life insurance policy can function as a productive asset.
Banks commonly purchase BOLI to:
Many community banks, regional banks, and national banks have held BOLI policies for decades because they can provide consistent long-term value while complementing other institutional investments.
Imagine a bank promises millions of dollars in retirement benefits to senior executives.
Those obligations don’t disappear.
Eventually those benefits must be paid.
Rather than allowing those future obligations to become an increasing drain on earnings, the bank purchases permanent life insurance on selected executives.
Over time:
The result is a financing strategy that helps offset liabilities already expected to occur.
Viewed this way, BOLI is less about insurance and more about long-term financial management.
Corporations face many of the same challenges banks do.
Instead of setting aside taxable investment accounts, many companies use permanent life insurance because it combines several financial characteristics into a single asset.
Corporate-Owned Life Insurance can help businesses:
For many corporations, COLI becomes part of an overall capital management strategy rather than simply an insurance purchase.
If companies want long-term growth, why don’t they simply invest in stocks or bonds?
The answer lies in the combination of features offered by permanent life insurance.
Permanent life insurance combines several desirable characteristics into one financial asset.
These often include:
For institutions seeking conservative growth with favorable tax treatment, those characteristics can be attractive.
That doesn’t mean life insurance replaces every investment.
Rather, it fills a unique role that many traditional assets cannot.
One of the biggest differences between institutional thinking and consumer thinking is how life insurance is classified.
Most individuals think of life insurance as an expense.
Businesses frequently classify permanent life insurance as an asset.
Why?
Because cash value becomes part of the organization’s financial resources.
As cash value grows, it increases the value of an asset already owned by the company.
That asset may:
This explains why CFOs, controllers, and bank executives often evaluate life insurance very differently than the average consumer.
Although these strategies have existed for decades, their use continues to expand.
Several factors have contributed to their continued growth.
Executive compensation packages have become increasingly sophisticated.
All create future financial obligations.
BOLI and COLI help companies prepare for those obligations years before they become due.
Taxes reduce investment returns.
Institutional investors constantly look for ways to improve after-tax performance without taking unnecessary risk.
Because permanent life insurance receives favorable tax treatment under current law when properly structured, it has become an attractive option for organizations seeking greater tax efficiency.
Banks and corporations typically think in decades—not quarters.
Rather than maximizing this year’s earnings alone, many organizations prioritize predictable long-term financial stability.
Permanent life insurance aligns well with that philosophy because it is designed as a long-duration asset.
Unlike market-based assets that may fluctuate significantly from year to year, properly designed permanent life insurance generally emphasizes steady accumulation over dramatic short-term gains.
For institutions managing billions of dollars, predictability has tremendous value.
If these strategies are so effective, why hasn’t everyone heard about them?
There are several reasons.
First, BOLI and COLI are niche financial products.
Most consumers will never purchase them because they’re designed specifically for banks and businesses.
Second, these strategies are rarely advertised.
Banks don’t market their balance sheet management strategies to consumers.
Corporations don’t issue press releases announcing they purchased additional life insurance on executives.
Instead, these policies quietly serve their purpose behind the scenes.
Finally, many people only think of life insurance as protection against death.
Institutional investors often view permanent life insurance through an entirely different lens—as a financial asset capable of supporting long-term planning, improving tax efficiency, and strengthening overall financial stability.
Because these strategies are unfamiliar to many people, several myths continue to circulate.
Reality: The death benefit is only one component. Most institutions value the tax-deferred cash value growth, balance sheet benefits, and long-term financial efficiencies just as much.
Reality: Many executives covered under BOLI or COLI also have separate personal life insurance provided through employee benefit programs. Institutional policies serve a different purpose than individual family protection.
Reality: Federal rules require notice, consent, and compliance with applicable regulations. Organizations generally insure key executives or employees whose loss would have a measurable financial impact.
Reality: Like any financial asset, there are risks, including policy design, regulatory compliance, and long-term planning considerations. However, institutions generally perform extensive due diligence before purchasing these policies.
Perhaps the most interesting takeaway from BOLI and COLI isn’t that banks and corporations own life insurance.
It’s why they own it.
Some of the world’s largest financial institutions—with teams of economists, accountants, actuaries, and investment professionals—continue allocating billions of dollars to permanent life insurance.
They aren’t doing so because they lack access to other investments.
They’re doing so because permanent life insurance offers a combination of tax treatment, liquidity, stability, and long-term financial utility that fills a unique role on an institutional balance sheet.
That doesn’t mean BOLI or COLI is appropriate for every business. But it does explain why these strategies have remained a core financial tool for sophisticated organizations for decades.
Understanding the mechanics of BOLI insurance and COLI insurance makes it much easier to see why banks and corporations continue using these strategies year after year.
Although the details vary depending on the organization and policy design, the overall process is remarkably straightforward.
At its core, Bank-Owned Life Insurance (BOLI) and Corporate-Owned Life Insurance (COLI) follow the same five-step framework:
Let’s examine each step in greater detail.
Banks don’t insure every employee.
Instead, they generally insure individuals whose knowledge, leadership, or responsibilities make them especially valuable to the institution.
This often includes:
Before coverage can begin, federal rules require the employee to receive written notice and provide written consent.
Once consent has been obtained, the bank purchases a permanent life insurance policy.
In nearly every case:
Unlike personal life insurance, ownership never belongs to the insured.
Step 3: Cash Value Begins Growing
This is where BOLI becomes much more than simply life insurance.
Each premium contributes toward building cash value inside the policy.
Over time, that cash value grows through:
The bank records this growing cash value as an asset on its balance sheet.
Instead of sitting idle, the asset continues working throughout the insured employee’s lifetime.
While the insured is living, the policy may help the bank:
The policy isn’t waiting for someone to die.
It is providing value every year it remains in force.
Eventually, when the insured dies, the insurance company pays the death benefit to the bank.
Assuming all applicable requirements have been satisfied, those proceeds are generally received income tax-free.
The bank often uses those funds to:
Key Executive
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Bank Purchases Policy
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Bank Pays Premiums
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Cash Value Grows Tax-Deferred
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Bank May Access Policy Values
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Death Benefit Paid to Bank
The process for Corporate-Owned Life Insurance is nearly identical.
The primary difference is that a corporation—not a bank—owns the policy.
Not every employee qualifies for COLI.
Most companies insure individuals whose loss would significantly affect the business.
Examples include:
The corporation must satisfy IRS notice and consent requirements before coverage begins.
The company becomes:
The employee is simply the insured person.
This distinction is important because many people mistakenly assume the employee owns the policy.
They do not.
Like BOLI, COLI policies generally build cash value over time.
This cash value becomes a corporate asset.
The accumulated value may:
Many corporations intentionally hold these policies for decades.
As long as premiums are paid and the policy remains in force, the cash value continues accumulating according to the terms of the contract.
This long-term accumulation is one of the primary reasons corporations choose permanent life insurance rather than term insurance.
Term insurance provides only a death benefit.
Permanent life insurance provides both:
When the insured employee dies, the insurance company pays the death benefit to the corporation.
Those proceeds may be used to:
Key Employee
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Corporation Purchases Policy
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Corporation Pays Premiums
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Cash Value Accumulates
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Corporate Asset Grows
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Death Benefit Paid to Corporation
One of the most common questions surrounding COLI insurance is ownership.
The answer is straightforward.
| Question | BOLI | COLI |
| Who owns the policy? | Bank | Corporation |
| Who pays premiums? | Bank | Corporation |
| Who controls cash value? | Bank | Corporation |
| Who can borrow against the policy (if permitted by the policy)? | Bank | Corporation |
| Who receives the death benefit? | Bank | Corporation |
The insured/employee does not own the policy.
Instead, the organization owns every aspect of the contract.
This question deserves special attention because it helps explain the strategic value of BOLI and COLI.
Although term insurance is less expensive initially, it lacks several features institutions value.
| Permanent Life Insurance | Term Life Insurance |
| Builds cash value | No cash value |
| Lifetime coverage (if properly funded) | Temporary coverage |
| Potential policy loans | None |
| Long-term balance sheet asset | Expense only |
| Can support liquidity | No living value |
| Tax-deferred cash value growth | None |
Banks and corporations generally aren’t looking for the lowest-cost death benefit.
They’re looking for an asset that contributes to their long-term financial strategy.
Permanent life insurance is uniquely positioned to do both.
Yes, many permanent life insurance policies allow policy loans.
This is one of the reasons institutional buyers value these policies.
Rather than surrendering the policy, organizations may access available cash value through loans, subject to the policy’s terms and conditions.
Depending on the policy design, those funds might be used to:
It’s important to distinguish between policy loans and policy withdrawals.
A loan does not necessarily reduce the policy’s long-term value in the same way a withdrawal can, although unpaid loans and accrued interest reduce the death benefit and may affect policy performance.
No.
A common misconception is that banks or corporations move all of their capital into life insurance.
That isn’t how these strategies work.
Instead, BOLI and COLI are typically one component of a diversified balance sheet.
A bank or corporation may also own:
Each asset serves a different purpose.
Life insurance occupies a niche because it combines long-term accumulation, tax advantages, liquidity, and a death benefit within a single financial instrument.
Perhaps the most valuable lesson from understanding how BOLI and COLI work is this:
The world’s largest banks and corporations don’t view permanent life insurance merely as protection against death. They view it as a financial asset that can complement broader capital management strategies.
That perspective may surprise people because it differs from the way life insurance is commonly presented to consumers. Yet it helps explain why these policies have remained part of institutional financial planning for decades.
One of the primary reasons Bank-Owned Life Insurance (BOLI) and Corporate-Owned Life Insurance (COLI) have become popular institutional financial tools is their favorable tax treatment.
That doesn’t mean they’re tax loopholes.
Nor does it mean every life insurance policy automatically qualifies for special tax treatment.
Instead, Congress has established specific rules governing how life insurance policies are taxed, along with additional regulations that banks and corporations must satisfy to preserve those benefits.
Understanding these rules is essential because much of the value of BOLI insurance and COLI insurance comes from their long-term tax efficiency.
Permanent life insurance receives unique treatment under the Internal Revenue Code.
When properly structured and administered, these policies generally provide three significant tax advantages:
This combination makes permanent life insurance different from most traditional investments.
Perhaps the most valuable feature of BOLI and COLI is the ability for cash value to grow without annual income taxation.
Consider a traditional taxable investment account.
Each year an organization may owe taxes on:
Those taxes reduce the amount of money remaining to compound in future years.
Permanent life insurance works differently.
As long as the policy remains in force and continues to qualify under current tax law, the growth inside the policy generally accumulates tax-deferred.
Because earnings remain inside the policy instead of being reduced by annual taxation, the cash value has the potential to compound more efficiently over long periods.
For institutions that expect to own these policies for decades, this tax-deferred growth can become a meaningful advantage.
Unlike many investments, permanent life insurance may allow the policy owner to access available cash value during the insured’s lifetime.
For BOLI and COLI, this can provide additional financial flexibility.
Organizations may access policy value through policy loans or, in some cases, withdrawals, depending on the policy design and the organization’s objectives.
It’s important to understand that:
When structured and managed properly, however, policy loans can provide institutions with a flexible source of liquidity without requiring the sale of other investments.
The death benefit is often the most widely recognized tax advantage of life insurance.
Under current federal tax law, life insurance death benefits are generally received income tax-free by the beneficiary.
For BOLI and COLI, this means the bank or corporation receives the proceeds without owing federal income tax, provided the policy satisfies the applicable statutory requirements.
Those proceeds may then be used to:
This favorable treatment is one reason life insurance continues to be an attractive institutional asset.
If permanent life insurance offers tax-deferred growth and an income tax-free death benefit, why isn’t every dollar invested this way?
The answer lies in purpose.
Life insurance is not designed to replace every investment.
Instead, it fills a specific role.
Permanent life insurance generally works best for organizations seeking:
Organizations focused solely on maximizing short-term investment returns may choose different assets.
Banks and corporations typically build diversified portfolios in which life insurance complements—not replaces—other investments.
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Although Corporate-Owned Life Insurance (COLI) offers favorable tax treatment, Congress has imposed specific safeguards to prevent abuse.
Today, most employer-owned life insurance policies fall under the notice and consent provisions found in Internal Revenue Code Section 101(j).
These rules are intended to ensure transparency between employers and employees.
Before a COLI policy is issued, the employee generally must receive written notice explaining:
This notification must occur before the policy is issued.
After receiving notice, the employee generally must provide written consent.
This consent confirms the employee understands:
Without proper consent, favorable tax treatment may be jeopardized.
Corporations that own employer-owned life insurance generally must file IRS Form 8925 annually.
The form reports information such as:
Proper recordkeeping is essential because these records may be needed to demonstrate compliance if the IRS examines the policy.
Not every employee qualifies for COLI.
Generally, the insured must fall within categories established by federal law.
Examples often include:
These requirements help ensure COLI is used for legitimate business purposes rather than indiscriminate coverage.
Banks operate under a different regulatory framework than most businesses.
While corporations primarily focus on IRS compliance, banks must also satisfy guidance issued by federal banking regulators.
The Office of the Comptroller of the Currency (OCC) has published guidance describing how banks should evaluate and manage BOLI programs.
Rather than treating BOLI as a simple insurance purchase, regulators expect banks to approach it like any other material asset.
Before purchasing BOLI, banks are generally expected to conduct a thorough analysis that considers:
This analysis helps ensure the purchase aligns with the bank’s overall strategic plan.
Because BOLI is often held for decades, selecting a financially strong insurance company is critical.
Banks typically evaluate:
Carrier selection is one of the most important decisions in a successful BOLI program.
Federal regulators also expect banks to avoid excessive concentration in any single asset class or insurance carrier.
Diversification remains an important principle of sound risk management.
This helps protect institutions from becoming overly dependent on one investment or one insurer.
Some people mistakenly describe BOLI and COLI as tax loopholes.
That isn’t accurate.
These strategies exist because Congress intentionally established rules governing the taxation of life insurance.
The favorable tax treatment is not accidental.
It reflects long-standing federal policy recognizing the economic and social value of life insurance.
At the same time, lawmakers have enacted detailed notice, consent, reporting, and compliance requirements to prevent misuse.
When organizations follow these rules, they are simply using the law as written—not exploiting an unintended loophole.
Reality: In most cases, premiums paid for BOLI and COLI are not deductible as a business expense.
Reality: Cash value generally grows tax-deferred, not tax-free. Tax consequences can arise if a policy is surrendered, lapses with outstanding loans, or otherwise fails to meet applicable tax requirements.
Reality: Life insurance death benefits are generally income tax-free, but failure to comply with rules such as the employer-owned life insurance notice and consent requirements can affect that treatment.
Reality: Federal law places limits on employer-owned life insurance and establishes specific requirements that must be met before coverage is issued.
The tax advantages associated with BOLI and COLI are significant, but they depend on proper planning, documentation, and ongoing administration.
Organizations should work closely with experienced legal, tax, accounting, and insurance professionals to ensure these policies are designed and maintained in accordance with current law.
For banks and corporations alike, compliance isn’t simply a regulatory requirement—it’s what helps preserve the long-term value these institutional life insurance strategies are intended to provide
Not all Bank-Owned Life Insurance (BOLI) policies are structured the same way.
One of the biggest differences between institutional BOLI and the life insurance most consumers are familiar with is the type of account used to hold the policy assets.
When a bank purchases BOLI, it generally chooses one of three account structures:
Each structure offers a different balance of guarantees, transparency, investment flexibility, and risk management.
Understanding these options helps explain why banks carefully evaluate BOLI before making a purchase and why regulatory agencies require extensive due diligence.
| Account Type | General Account | Separate Account | Hybrid Account |
| Guaranteed Minimum Crediting Rate | ✔ Yes | Usually No | ✔ Yes |
| Assets Segregated From Insurance Company | No | ✔ Yes | Partial |
| Investment Transparency | Limited | High | Moderate to High |
| Subject to Carrier Credit Risk | Yes | Reduced | Reduced |
| Creditor Protection | Limited | Greater | Greater |
| Most Common Users | Community banks | Larger institutions | Banks seeking a balance of guarantees and transparency |
No single structure is “best” for every institution. The right choice depends on the bank’s objectives, risk tolerance, regulatory considerations, and long-term financial strategy.
The General Account is the oldest and historically most common type of BOLI.
With this structure, premiums become part of the insurance company’s general investment portfolio.
Rather than owning a separate investment account, the bank owns a life insurance contract backed by the overall financial strength of the insurance company.
The insurer typically invests in assets such as:
Because the insurance company manages these assets, the bank does not direct individual investment decisions.
General account BOLI offers several attractive characteristics.
Most general account policies include a guaranteed minimum crediting rate.
Even if market interest rates decline, the policy will continue earning at least the contractual minimum.
This provides predictability that many financial institutions value.
General account BOLI is relatively straightforward.
The insurance company manages:
The bank owns the policy without needing to oversee an investment portfolio.
Stable Long-Term Returns
Because insurers invest primarily in high-quality fixed-income assets, returns tend to be relatively stable over long periods.
Banks often value consistency more than maximizing short-term returns.
Like any financial strategy, general accounts also have limitations.
Carrier Credit Risk
Because assets remain part of the insurance company’s general account, the bank depends on the insurer’s financial strength.
If the carrier experiences financial difficulties, policy values could be affected.
This is one reason banks spend considerable time evaluating insurer ratings before purchasing BOLI.
Limited Transparency
Banks generally receive information about overall policy performance but do not see the complete investment portfolio supporting the policy.
For institutions wanting greater visibility into underlying investments, other structures may be preferable.
A Separate Account functions differently.
Instead of becoming part of the insurance company’s general assets, the premiums are allocated to a legally separate account maintained specifically for those policyholders.
The insurance company still administers the policy, but the underlying assets are segregated from the carrier’s general account.
Separating assets provides several potential advantages.
If an insurance company were to experience financial distress, separate account assets generally receive additional legal protections under applicable laws and regulations.
Although protections vary depending on state law and policy structure, many institutions appreciate the added level of asset separation.
Greater Transparency
Banks typically receive significantly more information regarding:
This transparency allows institutions to better understand how their policy values are being supported.
Reduced Carrier Exposure
Although the insurance company still plays a central role, the segregation of assets reduces direct exposure to the insurer’s general account.
This can be an important consideration for larger institutions managing significant BOLI portfolios.
Investment Flexibility
Separate accounts may allow more flexibility in managing the underlying investments while remaining within regulatory guidelines.
Separate accounts also involve tradeoffs.
Unlike many general account policies, they may not provide the same level of guaranteed minimum crediting rates.
Performance depends more directly on the underlying assets supporting the account.
For banks that prioritize guarantees over transparency, this may be less appealing.
As the name suggests, a Hybrid Account combines features of both the General Account and Separate Account structures.
The goal is to balance:
Many banks view hybrid accounts as offering a “best of both worlds” approach.
Hybrid accounts often provide:
For many institutions, this creates a balanced approach between security and flexibility.
Banks increasingly seek both safety and visibility.
Hybrid accounts may allow institutions to:
As banking regulations have evolved, many institutions have found hybrid structures attractive for long-term balance sheet management.
There isn’t a universal answer.
The appropriate structure depends on factors such as:
A community bank with a relatively modest BOLI program may prioritize simplicity and guarantees.
A large regional institution with sophisticated treasury operations may place greater value on transparency and asset segregation.
Before implementing BOLI, banks typically conduct extensive due diligence.
This process often includes evaluating:
Banks carefully review:
Because BOLI is generally intended as a long-term asset, carrier quality is one of the most important considerations.
Different insurers manage their investment portfolios differently.
Banks evaluate:
The goal is to ensure the policy complements the institution’s broader asset allocation strategy.
Banks also consider:
Although BOLI is designed as a long-term asset, institutions still evaluate how easily policy values can support future financial needs.
Not exactly.
While corporations purchasing COLI insurance certainly evaluate insurers, policy design, and investment options, the terminology of General, Separate, and Hybrid Accounts is most commonly associated with institutional BOLI programs.
Corporations focus more heavily on questions such as:
Although similar investment concepts may apply, the account classifications discussed in this section are primarily associated with bank-owned life insurance.
No financial strategy is completely risk-free, including BOLI and COLI.
Before purchasing institutional life insurance, organizations should carefully evaluate:
Changes in interest rates may affect policy crediting rates and long-term performance, depending on the policy structure.
The financial strength of the issuing insurance company is critical.
Institutions generally select highly rated insurers with long histories of financial stability.
Tax laws and banking regulations can change over time.
Organizations should periodically review their BOLI or COLI programs to ensure continued compliance with current requirements.
Although permanent life insurance provides access to cash value, it should generally be viewed as a long-term asset rather than a short-term cash management tool.
Surrendering policies prematurely can reduce overall efficiency and may have financial or tax consequences.
Not all permanent life insurance policies are designed equally.
Poorly structured contracts may deliver significantly different results than policies specifically designed for institutional planning.
For this reason, organizations should work with experienced professionals who understand both the insurance products and the regulatory environment.
Choosing the right BOLI account structure involves more than comparing interest rates or policy illustrations. Banks evaluate how each option supports their broader financial strategy, risk management practices, and regulatory responsibilities.
Whether an institution selects a General Account, Separate Account, or Hybrid Account, the objective remains the same: to own a long-term financial asset that can help strengthen the balance sheet, improve tax efficiency, and support future obligations.
At this point, you understand what BOLI (Bank-Owned Life Insurance) and COLI (Corporate-Owned Life Insurance) are, how they work, and why institutions use them.
But, when do these strategies actually make sense?
The answer depends entirely on the goals of the organization.
Neither BOLI nor COLI is a universal solution. Like any financial asset, they work best when they solve a specific problem.
Understanding those situations—and recognizing when another strategy may be more appropriate—is part of making an informed decision.
Bank-Owned Life Insurance is generally most effective when a financial institution wants to:
Many banks implement BOLI because executive compensation obligations are predictable.
If the institution knows it will owe millions of dollars in retirement benefits over the next several decades, it makes sense to own assets specifically intended to help fund those obligations.
Rather than allowing those future expenses to reduce earnings year after year, BOLI helps match long-term assets with long-term liabilities.
This concept is known as asset-liability matching, and it’s one reason BOLI has become so common throughout the banking industry.
Imagine a community bank with five senior executives participating in a supplemental executive retirement plan.
Those future obligations could total several million dollars.
Instead of funding those obligations entirely from future operating income, the bank purchases BOLI on those executives.
Over time:
The result is a strategy designed to strengthen long-term financial stability.
Corporate-Owned Life Insurance serves many of the same purposes outside the banking industry.
COLI often makes sense when a business wants to:
Because every company is different, COLI can be customized to support a wide range of business objectives.
Suppose a manufacturing company has spent twenty years developing proprietary production methods under the leadership of one executive.
Replacing that individual would involve:
The corporation purchases COLI on that executive.
While the executive remains employed, the policy builds cash value and supports long-term planning.
If the executive unexpectedly dies, the death benefit provides capital that helps the company navigate the transition.
Although these strategies offer many advantages, they aren’t appropriate for every organization.
For example, BOLI or COLI may not be the best fit when:
Because permanent life insurance is designed as a long-term financial tool, organizations considering BOLI or COLI should evaluate these policies over decades—not years.
While the specific benefits vary depending on policy design, institutional goals, and regulatory requirements, organizations often cite several key advantages.
Cash value generally grows tax-deferred, allowing assets to compound without annual income taxation.
When structured and administered properly, death benefits are generally received income tax-free under current federal tax law.
Permanent life insurance creates an asset that can continue growing throughout the insured’s lifetime.
Cash value becomes a corporate or banking asset that may improve financial flexibility.
Many institutions use BOLI or COLI to offset the costs associated with:
Unlike many market-based investments, permanent life insurance is often selected because of its emphasis on stability and long-term planning.
Many policies provide access to accumulated cash value through policy loans, subject to policy terms and applicable regulations.
A balanced discussion should also address the limitations.
Permanent life insurance generally performs best when held for many years.
Organizations seeking short-term returns may find other assets more appropriate.
Policies require ongoing premium funding according to the chosen design.
Companies should ensure those commitments align with their long-term financial plans.
Organizations must comply with applicable IRS rules, banking guidance, notice requirements, and reporting obligations.
Failure to do so can affect the policy’s intended tax treatment.
The quality of the insurance company matters.
Choosing a financially strong carrier is essential for long-term success.
Compared with many financial products, BOLI and COLI involve:
As a result, these strategies require knowledgeable advisors and careful planning.
The biggest mistake organizations make isn’t purchasing BOLI or COLI—it’s purchasing the wrong policy or implementing it without a clearly defined financial objective.
Life insurance should never be purchased simply because of its tax advantages.
It should support a broader business strategy that includes executive compensation, capital management, risk management, or long-term financial planning.
These terms are often confused.
Although they may appear similar, they serve different purposes.
| Key Person Insurance | COLI |
| Primarily protects against the financial loss of one key employee | Often supports broader executive benefit or capital management strategies |
| May be temporary or permanent | Typically permanent |
| Often purchased for business continuity | Often integrated with long-term financial planning |
| Frequently focused on replacement costs | Frequently focused on multiple financial objectives |
Some key person insurance policies also function as COLI.
However, not every COLI arrangement consists of key person insurance.
Another common misconception is that COLI and buy-sell agreements are the same thing.
They’re not.
A buy-sell agreement is designed to facilitate the transfer of business ownership after the death, disability, or retirement of an owner.
Life insurance is often used to fund those agreements.
COLI, on the other hand, is typically owned by the corporation itself and is designed to support broader business objectives.
While both involve life insurance, they solve different problems.
Yes—but not every small business should.
COLI may be appropriate for closely held companies that:
For very small businesses with limited resources, simpler planning strategies may be more appropriate.
The decision should be based on the company’s objectives rather than its size alone.
Individuals cannot purchase Bank-Owned Life Insurance.
Nor can they purchase Corporate-Owned Life Insurance unless they own a qualifying business that implements such a program.
However, individuals can learn an important lesson from these institutional strategies.
Banks have access to virtually every investment available.
Corporations employ teams of financial professionals.
Yet many of these organizations intentionally allocate billions of dollars to permanent life insurance.
Why?
Because they recognize that permanent life insurance can provide a combination of characteristics that few other financial assets offer:
That institutional perspective has led many business owners and families to ask a natural question:
If banks and corporations consider properly designed permanent life insurance a valuable financial asset, should individuals evaluate it differently as well?
The answer depends on the individual’s financial goals, cash flow, risk tolerance, and planning horizon.
For some people, participating whole life insurance may serve as one component of a broader financial strategy. For others, different solutions may be more appropriate.
The important takeaway is not that individuals should copy banks or corporations.
Rather, it’s that understanding why sophisticated institutions use permanent life insurance can encourage more informed conversations about its potential role in personal financial planning.
BOLI and COLI don’t prove that permanent life insurance is the right solution for every person or every business. They do demonstrate that some of the world’s most sophisticated financial institutions view properly designed permanent life insurance as far more than simply a death benefit.
That perspective is worth understanding, whether you’re managing a bank, operating a business, or planning for your own family’s financial future.
BOLI (Bank-Owned Life Insurance) is a permanent life insurance policy purchased by a bank on the life of a key employee, executive, or director. The bank owns the policy, pays the premiums, controls the cash value, and is generally the beneficiary of the death benefit. Banks commonly use BOLI to help offset executive benefit costs, improve tax efficiency, and strengthen long-term financial planning.
BOLI stands for Bank-Owned Life Insurance. It is an institutional life insurance strategy used by banks to accumulate tax-deferred cash value and provide an income tax-free death benefit while helping finance employee benefit obligations and improve balance sheet performance.
BOLI insurance is permanent life insurance owned by a bank rather than an individual. Unlike personal life insurance, the policy is purchased for business purposes, including executive benefit funding, capital management, and long-term financial planning.
COLI (Corporate-Owned Life Insurance) is permanent life insurance owned by a corporation on selected employees or executives. The corporation owns the policy, pays the premiums, controls the cash value, and generally receives the death benefit.
COLI insurance is life insurance purchased by a corporation to insure key employees or executives. Corporations commonly use COLI to fund executive compensation programs, improve tax efficiency, build long-term assets, and protect against the financial impact of losing important personnel.
Company-owned life insurance is a broad term describing life insurance owned by a business rather than an individual. Corporate-Owned Life Insurance (COLI), Employer-Owned Life Insurance (EOLI), Key Person Insurance, and Buy-Sell funding arrangements are all examples of company-owned life insurance used for different business purposes.
Employer-Owned Life Insurance (EOLI) refers to life insurance owned by an employer on the life of an employee. Federal tax law establishes notice, consent, and reporting requirements for many employer-owned policies. Most EOLI arrangements fall within the broader category of company-owned life insurance.
The primary difference is the owner of the policy.
Both strategies use permanent life insurance to build cash value, provide tax advantages, and help finance long-term business obligations.
Neither is inherently better.
The better choice depends entirely on the type of organization implementing the strategy.
No.
BOLI and COLI use many of the same principles, including permanent life insurance, tax-deferred cash value growth, and income tax-free death benefits. However, BOLI is designed specifically for banks, while COLI is designed for corporations.
Banks purchase life insurance because it can help offset executive benefit costs, improve after-tax earnings, diversify institutional assets, and strengthen long-term financial planning. Permanent life insurance also provides tax-deferred cash value growth and generally income tax-free death benefits.
Corporations often purchase life insurance to protect against the financial loss of key employees, finance executive benefit programs, build tax-advantaged assets, improve liquidity, and support long-term financial obligations.
Banks own billions in life insurance because permanent life insurance can serve as a long-term financial asset. It offers tax-deferred growth, potential liquidity through policy values, and income tax-free death benefits that help offset employee benefit obligations and improve balance sheet performance.
No.
The bank or corporation owns the policy, pays the premiums, controls the cash value, and generally receives the death benefit. The employee is the insured person but does not own the contract.
Yes.
Federal law generally requires employers to provide written notice and obtain written consent before issuing employer-owned life insurance on an employee. Employees have the opportunity to decline coverage.
The cash value inside a BOLI policy generally grows tax-deferred, and death benefits are generally received income tax-free under current federal law when all applicable requirements are satisfied.
COLI generally receives the same favorable tax treatment as other permanent life insurance policies, provided the policy complies with IRS notice, consent, and reporting requirements. Cash value typically grows tax-deferred, and qualifying death benefits are generally income tax-free.
Many BOLI policies allow policy loans, subject to the policy’s terms and conditions. Banks may use available cash value to help support liquidity or other institutional financial needs.
Many COLI policies permit policy loans. Corporations may access available cash value to help manage cash flow or support long-term business objectives, subject to the policy’s provisions.
BOLI is typically structured using permanent life insurance because permanent policies build cash value over time. Term life insurance generally is not used because it does not accumulate cash value.
Most COLI programs use permanent life insurance that builds cash value. The specific policy type depends on the company’s objectives and overall financial strategy.
Key Person Insurance protects a business against the financial loss that could result from the death of an essential employee or owner. While some COLI policies may also serve a key person function, the two concepts are not identical.
Yes.
Some closely held businesses use COLI to support executive compensation, improve liquidity, or protect against the loss of key employees. Whether COLI is appropriate depends on the company’s financial goals, cash flow, and long-term planning needs.
No.
BOLI is designed exclusively for banks and other qualifying financial institutions. Individuals cannot purchase Bank-Owned Life Insurance for personal financial planning.
Individuals cannot purchase COLI for personal use. However, business owners may implement Corporate-Owned Life Insurance through a qualifying corporation if the strategy aligns with their business objectives and applicable legal requirements.
Perhaps the most important lesson is that banks and corporations often view permanent life insurance differently than consumers do. Rather than seeing it solely as a death benefit, many institutions view properly designed permanent life insurance as a long-term financial asset that can provide liquidity, tax advantages, stability, and financial flexibility.
Bank-Owned Life Insurance and Corporate-Owned Life Insurance have been part of institutional financial planning for decades. While they are specialized strategies designed for banks and businesses, they illustrate an important principle: permanent life insurance can serve multiple purposes beyond providing a death benefit.
For banks, BOLI helps support executive benefit programs, improve tax efficiency, and strengthen balance sheets.
For corporations, COLI provides a way to protect against the loss of key employees, finance long-term obligations, and create tax-advantaged corporate assets.
Although individuals cannot purchase BOLI or COLI directly, understanding why sophisticated financial institutions continue to invest billions of dollars in permanent life insurance offers valuable perspective. These organizations have access to virtually every investment option available, yet many continue to allocate capital to life insurance because of its unique combination of stability, liquidity, tax treatment, and long-term planning benefits.
Whether you’re a banking executive evaluating BOLI, a business owner exploring COLI, or simply someone trying to understand why institutional investors use permanent life insurance, the underlying principles remain the same: every financial tool has a purpose, and the most effective strategies are those aligned with clearly defined long-term objectives.
If you’re considering whether a BOLI or COLI strategy may be appropriate for your organization—or if you’d like to understand how the principles behind these institutional strategies relate to personal wealth-building through properly designed permanent life insurance—the team at McFie Insurance can help.
We’ll work with you to evaluate your goals, explain the available options, and determine whether life insurance fits into your overall financial strategy.
by Gracine McFie
There are many ways to access information about finances, but it can be hard to determine which sources are trustworthy. I like to put information together in an accurate, straightforward, easy to understand manner so people can make good financial decisions based on the information provided without having to waste time wondering if the source is reliable.