Bank Owned & Corporate Owned Life Insurance: What’s the difference?

BOLI – Bank-Owned Life Insurance

BOLI is Bank-owned life insurance. Banks are the biggest buyers of high cash value life insurance because they understand the economic benefits they receive from life insurance companies. 

Banks own 100’s billions of dollars in life insurance. The most important asset in any bank is its Tier One Capital, as this determines the amount of money a bank can multiply and lend out to the public. Not only is BOLI a core component of Tier One Capital, but it is also a substantial percentage of overall bank assets.

This type of insurance is typically used as a tax shelter for financial institutions, which leverage its ability to generate tax-free savings provisions as funding mechanisms for employee benefits. 

This asset class has continued to increase since the FDIC began tracking it in 2006. 

COLI – Corporate Owned Life Insurance

COLI is corporate-owned life insurance. Corporations buy insurance policies for a variety of reasons, including key man insurance. 

Policies bought by corporations are utilized as ways to protect themselves against the loss of a key employee or executive; a way to offset other costs; a way to create their own funding, instead of relying on a bank; a way to protect their workers’ families in case of sudden death or disability; or to create bonus plans for employees. They allow corporations to offer additional benefits while also providing a predictive long-term return on investment.   

These types of plans are more complex than standard life insurance policies IBC policies, but they use life insurance because of the growth, liquidity, and tax advantages life insurance offers. If banks and big corporations use life insurance, shouldn’t you?