Bank Owned Life Insurance or BOLI is a process where a bank purchases life insurance on a key employee (executive or director), usually several of them. In return for allowing the purchase of life insurance on their lives, the bank will traditionally offer some sort of additional compensatory benefit to the employee known as non-qualified deferred compensation. This can come in several different forms from an extra life insurance protection to additional retirement income benefits provided the employee stays with the company for a certain period of time.
The bank then can include cash values from the life insurance policy on its balance sheet. There is one important note regarding this. Due to banking regulation, banks are only allowed to recognize 50% of cash values in an insurance company's general account on their balance sheet. As a result, several companies have specialized BOLI products that use separate accounts (typically found with variable life insurance products) so the bank can recognize 100% of the cash surrender value on their balance sheet.
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The bank then can include cash values from the life insurance policy on its balance sheet. There is one important note regarding this. Due to banking regulation, banks are only allowed to recognize 50% of cash values in an insurance company's general account on their balance sheet. As a result, several companies have specialized BOLI products that use separate accounts (typically found with variable life insurance products) so the bank can recognize 100% of the cash surrender value on their balance sheet.