They say that comparison is the thief of joy, but in the banking world, comparison is the bedrock of survival.
Whether you are managing a small community bank with ten employees or steering a multi-billion dollar institution, you are constantly looking at the peer group. You look at their ROA, their efficiency ratios, and their net interest margins. You do this not out of envy, but out of a necessity to understand where the market is moving and ensure you aren’t being left behind in the race for stability and talent.
One of the most significant, yet often under-discussed, benchmarks in this comparison is Bank-Owned Life Insurance (BOLI).
If you’ve spent any time in the C-suite, you know that BOLI is no longer a "niche" strategy. It has become a standard tool for high-performing banks to offset the rising costs of employee benefits. But the question remains: Is your bank above or below the BOLI average? And more importantly, if you are an outlier, do you know why?
The State of the Market: By the Numbers
To understand where you stand, we have to look at the cold, hard data. As we move through 2026, the reliance on Bank-Owned Life Insurance has reached a critical mass.
Currently, 67% of all banks in the United States hold BOLI on their balance sheets. It is the majority position. If you don't have it, you are officially in the minority.
But holding it is only half the story. The depth of the investment is where the strategy really reveals itself. Among those who do hold BOLI, 65% have more than 3.5% of their Tier 1 assets committed to these programs. When we look at the heavy hitters: institutions with over $50 billion in assets: the average BOLI holding jumps to 12.8% of regulatory capital.
Why the disparity? Large institutions didn't get large by accident. They realized long ago that "benefit bleed": the slow, steady drain of capital used to fund executive retirements and rising healthcare costs: is a silent killer of shareholder value. They use BOLI as a specialized asset to recover those costs.
Why Averages Matter (and Why They Don't)
When a CEO asks me, "Matt, are we holding too much BOLI?" I rarely start with a number. I start with a question about their The Perfect Plan®.
Averages are a great starting point for a conversation, but they are a terrible way to run a business. If your bank is currently holding 2% of Tier 1 assets in BOLI while your peers are at 12%, you aren't "safer": you are likely just less efficient. You are paying for benefits with after-tax dollars while your competitors are using tax-advantaged assets to do the heavy lifting.
However, being "above" the average carries its own set of responsibilities. If you are pushing toward that 25% regulatory capital concentration limit, your documentation, your risk assessment, and your board oversight must be bulletproof.
The Technical Guardrails: OCC 2004-56 and IRC 7702
In this environment, you can’t afford to "wing it." The regulatory landscape for BOLI is defined largely by OCC Bulletin 2004-56. This isn't just a suggestion; it's the rulebook. It requires banks to perform comprehensive pre-purchase analysis and ongoing monitoring.
One of the most critical technical aspects we navigate with our clients is IRC Section 7702. This section of the Internal Revenue Code defines what actually constitutes a "life insurance contract" for federal tax purposes. If your policy doesn’t meet these stringent requirements, you lose the very tax advantages: tax-free inside buildup and tax-free death benefits: that make BOLI attractive in the first place.
At Schiff Executive Benefits, we focus on ensuring that every program we design is compliant not just today, but for the long haul. We reverse engineer the solution based on your specific liabilities, ensuring that the asset matches the intent.
Managing the 6 Key Risks
When the regulators come knocking, they aren't just looking at your earnings. They are looking at your risk management framework. OCC 2004-56 outlines six key risks that every bank must address regarding their BOLI holdings:
- Liquidity Risk: BOLI is an illiquid asset. You can't just flip it for cash tomorrow without potential tax penalties and surrender charges. How does this fit into your overall liquidity profile?
- Transaction/Operational Risk: This involves the complexity of the program. Is it being administered correctly? Are the death benefits being tracked?
- Reputation Risk: What happens if the carrier fails? Or if the public perceives the plan as "excessive"?
- Credit Risk: You are essentially making a long-term loan to an insurance carrier. Is that carrier stable? We work as a broker with a wide variety of top-tier carriers to ensure diversification and credit quality.
- Interest Rate Risk: BOLI values can fluctuate based on the interest rate environment. Does your board understand the impact of a rising or falling rate environment on your BOLI yield?
- Compliance/Legal Risk: From insurable interest laws to the 25% concentration limits, the legal hurdles are high.
Offsetting Benefit Bleed: Matching Assets to Liabilities
The most common "What If" we hear from bank presidents is: "What if our top talent leaves for the competitor down the street?"
In the current war for talent, standard 401(k) plans often fall short for high-earning executives due to IRS contribution limits. This is where we implement specialized tools like the 401k Mirror Plan.
But here is the catch: creating a promise (a liability) to pay an executive a SERP (Supplemental Executive Retirement Plan) or a Mirror Plan benefit in 15 years is easy. Funding it is the hard part. If you don't have an asset earmarked to grow alongside that liability, you are creating a massive hole in your future balance sheet.
By utilizing BOLI, we can match the asset to the future liability. When the executive retires, the cash value of the BOLI can provide the cash flow to pay the benefit. If the executive passes away prematurely, the death benefit protects the bank and the executive's family. It’s about restoring alignment and retention.
The Schiff Approach: Reverse Engineering Your Success
We don't believe in "off-the-shelf" products. Our team has almost 100 years of combined experience in technical benefit design. We don’t start with a BOLI policy; we start with your goals.
We ask the tough questions:
- What is the cost of your current benefit "bleed"?
- How much of your capital is working for you versus sitting in low-yield traditional assets?
- Are your top three executives truly tied to the long-term success of the bank?
Once we have those answers, we "reverse engineer" a solution that fits your culture. We call this The Perfect Plan®. It’s a process that ensures your benefits are a bridge to your goals, not a weight on your earnings.
Where Do You Go From Here?
If you find that your bank is below the average, don't panic. It’s an opportunity. It means you have "eligible purchase capacity": dry powder that can be deployed to increase your ROA and secure your key people.
If you are above the average, it's time for a check-up. Are you managing those six key risks? Is your documentation up to the standards of the latest OCC exams?
Regardless of where you sit on the curve, the goal is the same: realizing your dream value and building it your way. Don't let your executive benefits be an afterthought.
If you want to see exactly how your bank stacks up against a specific peer group: not just national averages, but the banks in your own backyard: let’s talk. Sit back, grab your coffee, and come join us for a deeper dive into the technical side of retention.
Your legacy is too important to leave to chance. Let's make sure you have The Perfect Plan® in place and help your bank maximize your BOLI Portfolio. Our Proprietary BOLI Model can give you a peer analysis and projected earnings analysis in seconds. Give us a call at 610-292-9330 or email us at info@schiffbenefits.com for your bank's copy. We're here to help, and have the expertise to work with ANY carrier.
Learn more: our complete guide to Bank Owned Life Insurance (BOLI).
The Benchmark Trap: Why Peer Averages Mislead
Benchmarking is a starting point, not a verdict. A peer average tells you what banks of roughly your size are doing; it tells you nothing about whether any of them did it well, or whether their circumstances resemble yours.
Two banks holding identical BOLI as a percentage of Tier 1 capital can be in completely different positions. One bought general account coverage from a highly rated carrier at a favorable crediting rate and has reviewed it annually since. The other holds a decade-old placement from a carrier that has since been downgraded, at a rate that quietly reset, with no documented review. The benchmark treats them as peers. An examiner will not.
Matching the average is therefore the wrong objective. The right question is whether your holding is sized to a real obligation, placed with carriers you would underwrite today, and structured so the economics still work under conservative assumptions.
BOLI vs. Traditional Fixed Income
The comparison that matters is against the specific asset the bank would otherwise hold for the same duration — not against an abstract benchmark.
- Tax treatment. Interest on taxable securities is recognized currently. BOLI cash value accumulates without current tax, and death proceeds are generally received income-tax-free when IRC 101(j) is satisfied. On identical nominal yields, the after-tax outcomes diverge substantially over a long holding period.
- Duration and liquidity. A bond portfolio can be sold. BOLI cannot be exited without surrendering the tax advantages that justified it. This is the central tradeoff, and it should be decided on the bank’s actual liquidity profile rather than on a yield comparison alone.
- Credit exposure. Fixed income carries issuer risk you can diversify at will. General account BOLI concentrates exposure in a small number of carriers, which is precisely why the 15% single-carrier guidance exists.
- Earnings presentation. BOLI increases flow through non-interest income rather than interest income, which changes how the contribution appears in your margin analysis.
None of this makes BOLI categorically better or worse. It makes it a different instrument with a different risk profile, appropriate for capital the bank can genuinely commit for the long term.
The Governance Questions Your Board Should Be Asking
Whether you hold BOLI already or are evaluating a first purchase, these are the questions that separate a defensible program from one that draws criticism:
- What specific benefit obligation does this holding offset, and how was the amount derived?
- Where does aggregate cash surrender value sit against current Tier 1 capital, and against each individual carrier?
- When was carrier financial strength last reviewed, and by whom?
- Is actual crediting performance tracking what was illustrated at purchase?
- Does 101(j) notice and consent documentation exist for every insured, including those inherited through acquisition?
- Does the pre-purchase analysis exist in writing, dated before the purchase?
- If the original business purpose has changed, does the holding still make sense?
A board that can answer all seven is in good shape. A board that cannot answer the last three has an examination problem waiting to surface, regardless of how the yield looks.
From Benchmark to Strategy
The point of measuring against peers is to prompt the harder question underneath: is this program built around your bank’s obligations, or was it sized to look normal? Benchmarks describe the market. Strategy is what you do with your own balance sheet.
For the full technical treatment of how these programs are structured and regulated, see our complete guide to Bank-Owned Life Insurance. If you already hold BOLI, the seven compliance mistakes boards make is the faster diagnostic.