Bank-owned life insurance is insurance the bank owns on the lives of its own officers and directors, paid for by the bank, with the bank as beneficiary – which means if you are the insured employee, you do not own it, you cannot sell it, and you cannot borrow against it. The person who can make decisions about a BOLI policy is the institution, acting through its board and subject to bank regulators.
Banks hold BOLI for a specific reason: it is one of the few assets whose earnings are tax-advantaged inside a highly regulated balance sheet. Cash value builds tax-deferred, the death benefit is generally received income-tax-free if the notice and consent requirements were satisfied, and the yield is used to offset the cost of employee benefit programs. That is why BOLI appears in the call reports of a large share of U.S. banks.
This page explains what BOLI is, the regulatory framework that governs it, what employees should ask, and where the individual life insurance decisions people actually face – their own personal policies – are different. Pine Lake Life Solutions offers a free policy review on individually owned policies; it is not a law or accounting firm and does not provide legal, tax, investment, or bank regulatory advice.
In This Article
- What BOLI Is and How It Sits on the Balance Sheet
- The Regulatory Framework Banks Operate Under
- IRC Section 101(j) Applies Squarely to BOLI
- What the Insured Employee Actually Has
- Can BOLI Be Sold in the Secondary Market?
- Your Personal Policy: Every Option Compared
- What to Ask, and Required Disclosures
- Frequently Asked Questions
What BOLI Is and How It Sits on the Balance Sheet
BOLI is permanent life insurance – typically general account, separate account, or hybrid designs – purchased by a bank on a defined group of officers and directors. The bank pays a single or limited premium, owns the contract, and names itself beneficiary. The asset appears on the balance sheet at cash surrender value, and the annual increase in that value flows through as noninterest income.
Three product structures dominate. General account BOLI credits a rate declared by the carrier and is backed by the carrier’s general assets. Separate account BOLI holds assets in an insulated account, often with a stable value wrap. Hybrid designs blend features of both.
The purpose is almost always benefit cost offset – funding health care for retirees, supplemental executive retirement plans, or general employee benefit expense. BOLI is not, and should not be, a speculative investment. Regulators have been explicit that it must be tied to a legitimate insurable interest and a documented business purpose.
The Regulatory Framework Banks Operate Under
The federal banking agencies issued an Interagency Statement on the Purchase and Risk Management of Life Insurance in 2004 – published by the OCC as Bulletin 2004-56 – which remains the governing supervisory guidance. It sets expectations for pre-purchase analysis, ongoing risk management, and documentation of business purpose.
The most cited figure in that guidance is the concentration benchmark: an institution’s aggregate cash surrender value of life insurance generally should not exceed 25% of capital, with a lower benchmark for any single carrier, and holdings above those levels warrant heightened scrutiny and justification. Examiners routinely test against it.
The guidance also expects a documented pre-purchase analysis covering the business purpose, vendor and carrier credit quality, the tax and accounting treatment, the liquidity and surrender charge profile, and the reputational and compliance risks – including notifying insured employees. Confirm current supervisory expectations with your institution’s compliance function, as guidance is periodically updated.
IRC Section 101(j) Applies Squarely to BOLI
The Pension Protection Act of 2006 added Section 101(j), which makes death benefits on employer-owned life insurance issued after August 17, 2006 taxable to the employer above premiums paid, unless before issue the insured received written notice of the intent to insure and the maximum face amount, consented in writing, and was informed that the employer would remain a beneficiary after employment ended – and unless a statutory exception applies, such as coverage on directors and highly compensated employees.
Employers report employer-owned contracts annually on Form 8925. For a bank, this is not paperwork trivia: the entire economic case for BOLI depends on the death benefit being received income-tax-free, so a missing consent file can impair the value of the asset.
Employees should know that this rule is why they were asked to sign a consent form at hire or promotion. Signing it does not give you an interest in the policy – it satisfies the tax condition that lets the bank hold it.
| Feature | BOLI (Bank-Owned) | Your Personal Policy |
|---|---|---|
| Owner | The bank | You, or your trust |
| Premium payer | The bank | You |
| Beneficiary | The bank (sometimes partly endorsed) | Whomever you name |
| Can the insured borrow against it? | No | Yes, if the contract allows |
| Can the insured sell it? | No – the bank owns it | Yes, if you and the policy qualify |
| Key rules | Interagency guidance; 25% of capital benchmark; IRC 101(j) | State insurance law; IRC 101(a); settlement statutes |
What the Insured Employee Actually Has
Usually nothing, and it is better to say that plainly than to let people assume otherwise. The bank owns the contract, pays the premium, and receives the death benefit. The employee has no cash value, no ability to borrow, no ability to sell, and typically no continuing interest after separation – though the coverage itself often continues, which surprises people.
Two exceptions worth knowing. Some institutions layer an endorsement split-dollar arrangement on top, endorsing a portion of the death benefit to the employee’s designated beneficiary as a benefit; that portion produces an annual economic benefit taxable to the employee. And some banks provide a stated survivor benefit under a separate agreement. Both are contractual – read the document rather than assuming.
If you want to know your situation, ask HR for three things: the consent form you signed, any split-dollar endorsement or survivor income agreement, and whether coverage continues after separation. See how split-dollar arrangements work and unwind.
Can BOLI Be Sold in the Secondary Market?
Institutionally owned policies are not the ordinary case for a life settlement, and it is worth being straightforward about why. BOLI is typically held to maturity by design; surrender charges in the early years are steep; the tax consequence of surrendering or transferring can be significant because gain above basis is ordinary income and a transfer can trigger the transfer-for-value rule under IRC Section 101(a)(2); and any transaction requires the insured individual’s cooperation with a HIPAA authorization and life expectancy underwriting.
Banks do sometimes restructure BOLI – via a 1035 exchange to a different carrier, or by surrendering underperforming general account contracts – but those are treasury decisions made with the institution’s advisers and examiners in view, not consumer transactions.
For most readers arriving here, the relevant policy is the one they own personally. Individually owned permanent policies of roughly $100,000 or more, with the insured typically 65 or older, are the realistic candidates for a secondary market review. See who buys policies and what qualifies.
Your Personal Policy: Every Option Compared
If the real question is what to do with coverage you own yourself – a whole life policy from the 1990s, a universal life contract with rising costs, or group coverage ending at retirement – the honest ranking looks like this.
Keep it when someone depends on the death benefit and the premium is comfortable. Reduce the face amount when the need shrank but did not disappear. Reduced paid-up on whole life to end premiums while keeping a smaller guaranteed benefit. 1035 exchange to move cash value tax-free into a better contract or an annuity – see 1035 versus settlement. Accelerated death benefit rider if a qualifying illness exists.
Surrender pays cash surrender value only. A life settlement pays a lump sum, generally 10% to 35% of face value and roughly 4 to 8 times surrender value per the federal GAO’s market study (GAO-10-775).
Selling is the wrong answer when heirs still need the coverage and the premium is affordable, when the insured is healthy and under 65, or when the policy is a small final expense contract – those are generally too small to interest any buyer.
What to Ask, and Required Disclosures
If you are a director or officer wanting to understand your institution’s BOLI: ask for the pre-purchase analysis, the current aggregate cash surrender value as a percentage of capital, the carrier concentration, the surrender charge schedule, and confirmation that 101(j) notice and consent files exist for every post-2006 contract. Those five items cover most of what an examiner would ask.
If you are an employee wanting to understand your own coverage, ask HR for your consent form and any survivor benefit agreement, and confirm whether coverage continues after separation and whether any conversion right exists. See group life conversion and what happens to employer coverage when you leave.
For an individually owned policy, a free policy review starts with the cover page – carrier, policy number, face amount, issue date. No cost, no obligation. Call (305) 209-7183.
Pine Lake Life Solutions provides educational information and free policy reviews on individually owned policies. It is not affiliated with any insurance carrier or financial institution, is not a law or accounting firm, and does not provide legal, tax, investment, or regulatory advice. Confirm all supervisory guidance and tax provisions with your own advisers as of 2026.
Frequently Asked Questions
What is bank-owned life insurance?
It is permanent life insurance a bank purchases on the lives of its own officers and directors, where the bank pays the premium, owns the contract, and is the beneficiary. The tax-advantaged growth in cash value is used to offset employee benefit costs. It appears on the balance sheet at cash surrender value.
Why is there a 25% limit I keep reading about?
The 2004 Interagency Statement on the Purchase and Risk Management of Life Insurance, issued by the OCC as Bulletin 2004-56 and by the other federal banking agencies, sets a supervisory benchmark that aggregate cash surrender value generally should not exceed 25% of capital, with a lower benchmark per carrier. Holdings above that draw heightened examiner scrutiny. Confirm current expectations with your compliance function.
I signed a consent form. Do I have an interest in the policy?
Almost always no. The consent satisfies IRC Section 101(j), which conditions the employer’s tax-free death benefit on written notice and consent obtained before the policy was issued. It does not give you cash value, borrowing rights, or a beneficiary interest. Ask HR whether a separate survivor benefit or split-dollar endorsement applies to you.
Does the coverage end when I leave the bank?
Often it does not, which surprises many former employees. The notice required under 101(j) specifically informs the insured that the employer may remain a beneficiary after employment ends. Ask HR to confirm your specific situation in writing.
Can an employee sell a BOLI policy on their own life?
No. The employee is the insured, not the owner, and only the owner can transfer a policy. Any decision about a BOLI contract belongs to the institution and its board, subject to regulatory expectations. Individually owned policies are a completely separate matter.
Can a bank sell BOLI in the secondary market?
It is uncommon. BOLI is designed to be held to maturity, early surrender charges are steep, gain above basis is ordinary income, and a transfer can trigger the transfer-for-value rule under IRC Section 101(a)(2). Banks more often restructure through a 1035 exchange, and always with their own advisers and examiners in view.
What if I want to review a policy I own personally?
Send the policy cover page showing carrier, policy number, face amount, and issue date for a free, no-obligation review. Realistic candidates are generally $100,000 or more of death benefit with an insured typically 65 or older. If your policy is not a candidate, you will be told that directly.
Find out what your policy is worth — free, confidential, no obligation.
A 15-minute educational review covers your eligibility, every alternative, and a realistic view of what each path would net you.
Related Reading
- Split Dollar Unwind
- Who Buys Life Insurance Policies
- What Is A Qualifying Life Settlement
- 1035 Exchange Vs Settlement
- What Is Group Life Conversion
- Laid Off Employer Life Insurance
- Can I Sell A Policy Owned By A Business
- Deferred Comp Policy Funding
- What Is Cash Surrender Value
- Minimum Policy Size For A Life Settlement
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.