BOLI investment

BOLI investment refers to a bank-owned life insurance policy that banks purchase on employees’ lives to generate tax-advantaged income and offset employee benefit costs. Banks report BOLI assets as “other assets” on balance sheets, with FDIC data showing U.S, per the Insurance Information Database.

Commercial banks held over $189 billion in BOLI at year-end 2023. The cash value of BOLI grows tax-deferred, and death benefits paid to the bank are generally received tax-free under IRC Section 101(a).

Banks use carriers such as Prudential, MetLife, and MassMutual for BOLI contracts, which typically insure groups like executives or senior officers. Regulatory agencies including the OCC, FRB, and FDIC provide guidance on prudent BOLI management through bulletins such as OCC Bulletin 2004-56.

Typical crediting rates for general account BOLI products ranged from 3% to 4% annually in early 2024 according to industry surveys by Meyer-Chatfield Group. Risks associated with BOLI include carrier insolvency risk and interest rate risk; banks mitigate these risks by diversifying among highly rated insurers (e.g.

AM Best A+ or higher) and product types (general account vs separate account). Surrender charges may apply if a bank terminates a policy early–these can reduce returns significantly during the first five-to-ten years per carrier disclosures.