If the letters BOLI or COLI make your eyebrows leap, you’re in good company. While they might sound like snack names, these acronyms influence how organizations fund obligations, arrange balance sheets, and plan for the long term. At their core they are institutional tools built on life insurance, applied carefully to pursue financial objectives while keeping compliance requirements in check.

 

By the end of this guide you will know what each acronym means, where each performs best, and how to choose between them without feeling overwhelmed.

 

 

Defining the Acronyms Clearly

What Is BOLI?

Bank-Owned Life Insurance, or BOLI, is coverage that a bank purchases on key employees, often executives, with the bank as owner and beneficiary. The core idea is simple. The policy accumulates cash value on a tax-advantaged basis, and the bank books that value as an asset. 

 

Over time, the earnings can help offset eligible employee benefit costs. When an insured person passes away, the death benefit is payable to the bank, subject to applicable rules. The point is not speculation. The point is predictable, long-term value that pairs well with conservative balance sheets.

 

What Is COLI?

Corporate-Owned Life Insurance, or COLI, is the broader cousin that nonbank corporations use for similar goals. A manufacturer, a technology firm, or a large retailer might use these policies to informally fund deferred compensation or to create a steady asset that grows inside the policy. 

 

The company owns the contracts, pays the premiums, and records the cash value on its books. As with BOLI, the insureds are typically a select group of employees, and the company must follow strict notice and consent rules.

 

 

How the Policies are Structured

Ownership, Beneficiaries, and Insured Lives

In both designs, the institution is the policy owner and usually the beneficiary. The insured population is not random. It typically includes executives and other highly compensated or key contributors whose retention or loss would have a meaningful financial effect. Consent is not a box to check and forget. It is a documented step that preserves tax treatment and good governance. Institutions that treat consent seriously avoid painful surprises later.

 

Premium Funding and Cash Value Mechanics

Premiums for these policies are not impulse purchases. They are planned, documented, and scaled to the organization’s goals. Inside the contract, cash value grows at a credited rate tied to the policy type, such as general account, separate account, or indexed crediting. 

 

The growth is designed to be tax-deferred, which is part of the appeal. Surrender charges, policy expenses, and carrier strength matter more than glossy brochures. Over years, not months, the cash value can become a meaningful asset that smooths earnings and offsets benefit obligations.

 

 

Accounting and Regulatory Landscape

Tax Treatment at a Glance

Under current rules, properly structured policies allow cash value to accumulate without current taxation, and death proceeds can be received without income tax, if notice and consent requirements are followed and the insured meets eligibility criteria. These rules are not casual reading. 

 

They are specific, and they evolve through legislation, regulation, and case law. The benefit to the institution depends on staying aligned with those details. A missed signature today can erase a tax advantage a decade from now.

 

Compliance and Documentation

Banks operate under additional guidance from bank regulators, which shape the amount of BOLI that is prudent relative to capital and earnings. That oversight encourages careful diversification across carriers and product types. 

 

Nonbank corporations using COLI do not face bank-specific limits, yet they still answer to auditors, compensation committees, and marketplace expectations. In both cases, clean files matter. Notice and consent forms, board minutes, carrier due diligence, and periodic policy reviews create a paper trail that justifies the strategy.

 

 

Strategic Applications for BOLI

Banks use BOLI primarily to offset the rising costs of employee benefits and to add a stable, long-duration asset that fits the bank’s conservative risk profile. The appeal is the combination of predictable crediting, administrative simplicity, and favorable accounting treatment. When properly sized, BOLI can help a bank fund nonqualified benefits for executives while improving the overall yield of bank-owned assets. 

 

Another practical advantage is diversification. Banks can spread BOLI across carriers and product types, balancing general account stability with separate account opportunities, all within policy-specific limits and regulatory guidance. This is not a short-term trading tool. It is a patient instrument designed to hum quietly in the background.

 

 

Strategic Applications for COLI

Corporations reach for COLI when they want to informally fund deferred compensation, supplement executive benefits, or build a tax-efficient asset that aligns with long-term obligations. The policy’s cash value can be matched conceptually to future benefit payouts, offering a sensible way to track and finance those promises. 

 

Finance teams appreciate how the growth inside the contract can dampen volatility if the carrier’s crediting approach is steady and the product is managed responsibly. The business case strengthens when a company wants to recruit and retain talent using nonqualified plans. COLI can serve as the silent partner that helps make those plans sustainable.

 

 

Risk Considerations and Mitigation

Carrier strength sits at the top of the risk discussion. The guarantees and crediting depend on the insurer’s balance sheet, so institutions scrutinize ratings, surplus levels, and portfolio quality. Product design matters too. General account products provide stable crediting that many treasurers prefer, while separate account or indexed designs can add return potential with additional complexity. Liquidity is another consideration. 

 

These policies are long-term by nature, and surrendering early can lock in charges and undermine the original purpose. The practical mitigation is simple. Vet carriers, diversify where appropriate, right-size the premium allocations, and commit to periodic policy reviews. Institutions that treat these assets like living, breathing parts of the balance sheet tend to get better outcomes.

 

 

Choosing Between BOLI and COLI

The choice is driven less by product mechanics and more by who you are. If you are a bank, BOLI aligns with your regulatory world, your asset liability profile, and your appetite for steady returns. If you are a nonbank company, COLI gives you the flexibility and scale you need for executive benefit financing or balance sheet management. 

 

Either way, the best path begins with a needs analysis. What benefits are you offsetting, what time horizon are you planning for, and how does the policy interact with your broader investment policy? Clear answers lead to a tighter implementation and fewer calendar reminders from your auditors.

 

Decision Factor	BOLI (Best Fit)	COLI (Best Fit)	Quick Take
Who you are	A bank operating under bank regulatory guidance	A nonbank company (any industry)	Your institution type usually makes the choice obvious.
Primary objective	Offset eligible employee benefit costs + add a stable, long-duration asset	Informally fund deferred compensation / executive benefits + balance-sheet asset growth	Both support benefits—BOLI skews “bank stability,” COLI skews “corporate flexibility.”
Regulatory environment	Bank examiners, capital/prudence considerations, diversification expectations	Auditors, comp committee, disclosure expectations (no bank-specific limits)	BOLI must “fit” bank oversight; COLI must “fit” corporate governance.
Balance sheet lens	Aligns with conservative asset-liability posture	Scales to match long-term obligations and talent strategy	Match the policy to how your org manages long-duration obligations.
Time horizon	Long-term, steady program	Long-term, often tied to multi-year comp plans	Neither is a quick fix—plan in years, not quarters.
Needs analysis questions	Which benefit costs are we offsetting? How does this align with our investment policy? How will we size it relative to capital?	Which executive plans are we funding? What horizon are we matching? How will we report performance to leadership?	Start with purpose + horizon + governance, then pick the structure.
Simple rule of thumb	If you’re a bank → BOLI	If you’re not a bank → COLI	Then refine based on goals, policy fit, and documentation readiness.

 

 

Common Misconceptions Worth Clearing Up

One common misconception is that these policies are some kind of shadow benefit hiding in the basement. In reality, they are documented, disclosed, and often discussed in board meetings. Another misconception is that the main advantage is a quick tax trick. The tax treatment is important, but the value is in long-term accumulation, aligned liabilities, and a better match between promises to people and assets on the books. 

 

There is also confusion about who is insured. These are not sweep-the-office policies. They are carefully underwritten on selected individuals who give informed consent. Getting these points right takes the drama out of the conversation and replaces it with practical planning.

 

 

The Bottom Line for Decision Makers

BOLI and COLI look similar because they share the same policy DNA. The difference lies in their habitats. BOLI lives in banks and answers to bank examiners, while COLI lives in companies and answers to accounting standards, compensation strategies, and the court of investor opinion. 

 

Both can support benefit obligations, both can add a stable asset to the balance sheet, and both can be mishandled if an institution treats them like a quick fix. The smart approach is to choose the design that fits your regulatory climate, your culture, and your time horizon. Then commit to clean documentation, periodic review, and a carrier lineup that passes the squint test on a bad day.

 

 

Practical Implementation Touchpoints

Before the ink dries, align internal stakeholders. Finance wants predictable results, human resources wants competitive benefits, legal wants airtight consent and notices, and the board wants a defensible rationale that squares with the organization’s mission. A well-run process gives each group what it needs. Next, pressure test policy projections under different crediting scenarios.

 

Unexpected rates can stretch or compress timelines for offsetting benefits. Set expectations that are realistic and unflashy, then decide how you will report the asset’s performance to leadership. Finally, schedule review dates. These policies are quiet by design, which can lure teams into benign neglect. A crisp annual review keeps contracts healthy and objectives current.

 

 

Cultural and Ethical Lens

These arrangements sit at the intersection of people, promises, and prudence. Communicating with empathy helps. Employees deserve clarity about consent forms and the narrow purpose of the coverage. Leadership deserves clean dashboards and no surprises. Shareholders deserve a strategy that funds obligations without unnecessary risk. 

 

When organizations maintain that balance, BOLI and COLI stop sounding like alphabet soup and start looking like the tools they are: steady, long-term helpers that support people programs without derailing the financial plan. If you can keep the tone practical, the records immaculate, and the expectations modest, you will likely sleep well and keep the auditors smiling.

 

 

Conclusion

BOLI and COLI are cousins with different zip codes. Banks turn to BOLI for regulator-friendly stability and benefit cost offsets, while corporations use COLI for flexible funding of executive promises and a patient asset that grows over time. Both reward careful carrier selection, realistic projections, and spotless documentation. 

 

If you match the tool to your institution, commit to periodic reviews, and keep stakeholders aligned, you will capture the advantages without the headaches. And if acronyms still make you squint, remember the translation: policies with a purpose, chosen for fit, managed with care, and built to last.