Category Archives: BOLI

A bank is only as strong as its community, and its community is only as strong as the leaders who serve it. In the financial world, stability is the cornerstone of trust. Yet, many bank executives find themselves facing an unstable paradox: how do you maintain a competitive edge and protect your balance sheet while simultaneously funding the escalating costs of employee benefits?

If you are leading a financial institution today, you are likely wrestling with the "What Ifs" that keep even the most seasoned presidents awake at night. What if your top talent is lured away by a larger competitor? What if the cost of your pension and health plans continues to outpace your portfolio’s yield? What if your senior executive retirement costs become a drag on your regulatory capital?

To find the answer, we look toward a strategy utilized by over 65% of banks in the United States. It is a tool designed for Restoring Alignment and Retention: Bank-Owned Life Insurance (BOLI).

What is BOLI, and Why Does It Matter?

At its most fundamental level, Bank-Owned Life Insurance is a life insurance policy purchased by a bank on the lives of its key employees: usually officers and directors. The bank is the owner and the beneficiary of the policy.

While the term "insurance" is in the name, for a financial institution, BOLI is primarily a sophisticated investment and a Tier 1 asset. The bank pays a premium (often a single lump sum), and the cash value of the policy grows over time.

Why is this so popular? Because it solves the problem of "lazy capital." Instead of holding assets in low-yield taxable instruments, banks move capital into a tax-advantaged BOLI structure where the growth can offset specific liabilities. It is a method of taking a "dead" expense: like the cost of executive benefits: and turning it into a high-performing asset.

The Economic Reality: After-Tax Yield and Efficiency

In a world where interest rates are volatile and traditional fixed-income yields are often squeezed by taxes, BOLI stands out as a beacon of efficiency.

When you compare BOLI to alternative fixed-income investments: such as municipal bonds, agency securities, or Treasuries: the difference is often staggering. Because the cash value growth within a BOLI policy is tax-deferred (and tax-free if held until the death of the insured), the "tax-equivalent" yield is significantly higher than what a bank can typically earn elsewhere.

As shown in our proprietary BOLI Pro Forma Analyzer, a $5 million investment in BOLI can provide a tax-equivalent rate that significantly outperforms corporate bonds or MBS portfolios. This isn't just about "beating the market"; it’s about generating the necessary cash flow to fund Non-Qualified Deferred Compensation (NQDC) and other executive carve-outs that are essential for retention.

Offsetting the Rising Cost of Talent

What is the true cost of losing your CFO or a high-performing VP of Lending? It isn't just the recruiter's fee. It is the loss of institutional knowledge, the disruption of client relationships, and the significant expense of "buying" a replacement in a competitive market.

Most banks use BOLI to recover the costs of:

• Post-retirement medical benefits


• Supplemental Executive Retirement Plans (SERPs)


• Group term life insurance premiums


• 401(k) matching and pension obligations

By utilizing BOLI, you are essentially creating an informal "sinking fund" to pay for these future obligations. It allows you to offer "ownership-like" benefits without actually diluting your bank’s equity. This is how you retain your key people while keeping the bank’s financial health intact.

Regulatory Compliance: The Tier 1 Advantage

One of the most frequent questions I get from Bank Presidents is: "How will the regulators view this?"

The answer is found in the Interagency Statement on the Purchase and Risk Management of Life Insurance. BOLI is recognized as a permissible investment for banks, provided it is managed within specific guidelines. Most notably, the Office of the Comptroller of the Currency (OCC) and other regulators generally allow BOLI holdings up to 25% of a bank’s Tier 1 capital.

Because BOLI is a high-quality asset backed by highly-rated insurance carriers, it provides a stable foundation for your balance sheet. Unlike securities portfolios, BOLI cash values are typically not subject to the "mark-to-market" volatility that can plague a bank during periods of rising interest rates. This makes it a preferred tool for managing earnings consistency.

The Human Element: Survivor Income as an Incentive

While the bank is the primary beneficiary, BOLI can also be structured to provide a powerful direct benefit to the insured executives.

Through "split-dollar" arrangements, a portion of the death benefit can be directed to the executive’s family. This provides "pre-retirement survivor income": a massive incentive for a key leader who wants to ensure their family is protected while they focus on growing your institution.

Think about the peace of mind you are offering your top officers. You aren't just giving them a salary; you are giving them a legacy. When you align the bank’s financial goals with the personal security of its leaders, you create an environment where talent stays for the long haul.

Why the "Carrier Agnostic" Approach Matters

The BOLI market is nuanced. There are different types of products: General Account, Hybrid Account, and Separate Account: each with its own risk profile and yield potential.

At Schiff Executive Benefits, we believe that your bank deserves a solution tailored to your specific capital structure and risk appetite, not a "product of the month." We operate as independent brokers, which means we work with all the major, highly-rated carriers to find the right fit for you.

Our process, which we call The Perfect Plan®, involves:

1. A Deep-Dive Needs Analysis: We look at your current benefit liabilities and capital ratios.


2. Carrier Evaluation: We vet the financial strength and historical performance of potential insurance partners.


3. Pro Forma Modeling: We show you exactly how BOLI will impact your EPS and ROA over 10, 20, and 30 years.


4. Implementation and Administration: We handle the heavy lifting, from board education to ongoing compliance monitoring.

The Point of No Return: Why Wait?

Every day that your bank's benefit liabilities grow while your assets remain in taxable, low-yield accounts is a day of lost opportunity. Economic shifts are coming, and the cost of talent is not going down.

Are you prepared for the next five years? What if your replacement cost for your senior team increases by 20%? What if your 401(k) matches become a burden on your margins?

BOLI is not just a financial product; it is a strategic shield. It provides a calm, structured way out of the anxiety of rising costs. It allows you to focus on what you do best: banking: while we ensure your "human capital" is fully funded and protected.

Join Us for a Deeper Conversation

Navigating the complexities of executive benefits and BOLI doesn't have to be a solo journey. Whether you are looking to implement your first BOLI plan or you want a review of your existing holdings to ensure they are performing as promised, we are here to help.

Sit back, grab your coffee, and let's discuss how we can bring stability back to your executive suite. Building your bank’s legacy should be a realization of your dream value, not a source of stress.

Come join us and discover how The Perfect Plan® can help you achieve alignment and retention.

Ready to explore the possibilities? Learn more about our services here.

Related Resources

• The Right Tool for the Right Job: BOLI for Banks, COLI for Corporations


• Hybrid Account Universal Life BOLI


• Separate Account Universal Life BOLI


• General Account Universal Life BOLI


• Our BOLI Process

Time is the only asset that cannot be replaced. In the world of high-level finance, whether you are running a regional bank or a multi-state corporation, you know that a missed opportunity today translates into a massive liability tomorrow. You’ve worked hard to build your organization, to hire the right people, and to protect your bottom line. But often, the very tools designed to safeguard your future, Corporate Owned Life Insurance (COLI) and Bank Owned Life Insurance (BOLI), become stagnant because of a "set it and forget it" mentality.

Are you absolutely certain your current portfolio is actually working for you, or is it just sitting there? Does your executive benefits strategy still align with the goals you set five years ago?

At Schiff Executive Benefits, we believe in a "reverse engineering" approach. We don't start with a product; we start with your desired outcome. Whether you’re looking to offset benefit costs, secure "golden handcuffs" for key talent, or fund a buy/sell arrangement, your portfolio needs to be precise.

Here are the 7 most common mistakes we see in COLI and BOLI portfolios and, more importantly, how you can fix them.

1. Treating Your Portfolio as a "Static" Asset

The market moves. Regulations shift. Tax codes evolve. Yet, many corporations and banks treat their life insurance portfolios like a dusty file in a cabinet. A common misperception is that BOLI or COLI is illiquid or unchangeable. In reality, these are dynamic financial instruments.

If you haven't reviewed your portfolio in the last 24 months, you are likely missing out on repricing opportunities or better-performing crediting rates. Market conditions change, and a portfolio requires periodic review to identify upgrade opportunities. Just as you wouldn't ignore your equity portfolio or your loan book, you cannot ignore your COLI/BOLI holdings.

2. Neglecting 101(j) and 409A Compliance

Compliance isn't just a box to check; it’s the foundation of your tax-advantaged status. Under IRC Section 101(j), if you don’t follow specific notice and consent requirements before the policy is issued, the death benefit, which should be tax-free, could suddenly become taxable income.

Similarly, for corporations using nonqualified deferred compensation (NQDC) plans, the shadow of Section 409A is always present. A single mistake in how your plan is structured or how the COLI informally funds it can lead to immediate taxation and 20% penalties for your key executives.

The Fix: Conduct a comprehensive audit of your documentation. Do you have the signed consents? Is your plan document 409A compliant? If you're unsure, it’s time to bring in our team to look under the hood.

3. Ignoring Credit Quality and Concentration Risk

We’ve all seen what happens when an organization puts too many eggs in one basket. In a BOLI environment, credit quality is paramount. Many providers pass along data from insurance carriers without truly validating it. Are you monitoring the financial health of the carrier? Are you diversified across multiple carriers to mitigate risk?

A healthy portfolio requires in-depth insurance carrier analysis. At Schiff Executive Benefits, we help you look beyond the marketing materials to the actual solvency and commitment of the carrier to the BOLI/COLI market.

Suggested prompt: A professional, high-end close-up of a hand reviewing a financial spread sheet with a glass of water on a polished wooden desk, warm natural lighting.

4. Failing to Link the Portfolio to Executive Retention

Why do you have these policies in the first place? For many of our clients, the goal is "Full Cost Recovery" of executive benefit plans. However, if your executive retention strategies are disconnected from your portfolio performance, you aren’t maximizing your "Ownership Feel."

Are you using Split Dollar arrangements? Are you leveraging the portfolio to create a "Golden Handcuff" effect that makes it impossible for your competitors to poach your top talent? If your portfolio is just a line item on the balance sheet and not a tool for talent management, you’re missing half the value.

5. Underestimating the Power of ESOP Integration

For partnerships and private corporations, Employee Stock Ownership Plans (ESOPs) are a powerful way to align employee interests with company growth. However, ESOPs create unique liquidity needs, especially when it comes to repurchase obligations.

Mistake number five is failing to use COLI to "sprinkle in" liquidity for these obligations. By reverse-engineering your future cash flow needs, we can structure a COLI portfolio that grows tax-deferred, providing the cash exactly when the company needs to buy back shares from retiring employees.

6. Overlooking Buy/Sell and Succession Funding

What keeps you up at night? For many business owners, it’s the question of what happens to the firm if a partner passes away or becomes disabled. Many Buy/Sell arrangements are funded with outdated policies that don't account for the current valuation of the business.

If your business has grown (and we hope it has!), your 10-year-old policy is likely insufficient. You are essentially leaving your legacy to chance. We use a technical lens to ensure your Buy/Sell funding matches your current "dream value," ensuring a smooth transition for the remaining partners and the family of the deceased.

7. Lacking a "Team of Advisors" Approach

The most dangerous phrase in business is "I’ve got it covered." Managing a COLI/BOLI portfolio requires a blend of legal, tax, accounting, and insurance expertise. If your insurance agent doesn't understand the nuances of FASB accounting or the specific regulatory hurdles faced by banks, they aren't helping you, they're creating risk.

At Schiff Executive Benefits, we don't work in a vacuum. We collaborate with your existing CPAs and legal counsel to ensure that your Perfect Plan® is airtight from every angle.

The Path Forward: Reverse Engineering Your Success

The national debt is rising, market volatility is the new constant, and the "war for talent" is only getting more intense. In this environment, you cannot afford a mediocre portfolio. You need a strategy that is as sophisticated as the organization you’ve built.

Are you realizing the maximum after-tax yield on your assets? Is your plan structured to recover every dollar of cost, including the opportunity cost of the money?

If these questions give you pause, it’s okay. Most of our clients felt the same way before we began the "reverse engineering" process with them. They were looking for security and a guarantee that their hard work would translate into a lasting legacy.

We invite you to stop guessing and start knowing. Your professional legacy is too important to leave to "standard" industry practices. You deserve a plan that is built your way, with your goals as the blueprint.

Sit back, grab your coffee, and let’s have a conversation. Whether you want to dive deep into the technicalities of a 409A plan or just want a second set of eyes on your BOLI holdings, we are here to guide you through the uncertainty.

Come join us at Schiff Executive Benefits. Let’s make sure your portfolio is doing exactly what it was meant to do: protect your business and reward your people.

To hear more about our philosophy and see these strategies in action, check out The Perfect Plan® Podcast where we break down complex financial structures into actionable executive advice.

Schiff Executive Benefits provides specialized consulting. For specific legal or tax advice, please consult with your professional advisors. You can find our full disclosure here.

Learn more: our complete guide to Bank Owned Life Insurance (BOLI) and Corporate Owned Life Insurance (COLI).