Why Do Banks Have $200+ Billion in Life Insurance?

Emmelis Keaney MSF, RFC®, Executive VP | November 11, 2025

BOLI and Personal Planning: Adapting a Bank Strategy

In the high-stakes world of banking, where every dollar must serve multiple purposes—funding loans, hedging against economic downturns, and ensuring regulatory compliance—there's a quiet powerhouse that few outsiders know about: Bank-Owned Life Insurance (BOLI). This isn't flashy marketing; it's a strategic asset class that helps banks mitigate risks like employee benefit costs, interest rate volatility, and even mortality credits in a low-yield environment. As of September 2024, over 3,000 U.S. banks held $205.7 billion in BOLI cash value, representing 13-19% of their Tier 1 capital on average.¹ Banks like Bank of America lead the pack with $25 billion in life insurance assets, followed by JPMorgan Chase at $12.8 billion and PNC at $11.4 billion.² Yet, while institutions quietly amass these policies—making banks the largest purchasers of life insurance in the U.S.—average investors shy away, often dismissing permanent life insurance as an expensive gimmick.³ This commentary unpacks how BOLI works, why it's a risk-mitigation masterstroke for banks, and how individuals can mirror it for wealth building, legacy creation, and tax-efficient transfers. We'll dive into the mechanics and math, debunk common fears, and highlight why savvy institutions prioritize what personal finance gurus like Dave Ramsey call a "waste of money."⁴

How Banks Use BOLI to Mitigate Risk:

BOLI involves banks purchasing large permanent life insurance policies on key executives or groups of employees, with the bank as the owner and beneficiary. The mechanics are straightforward yet powerful for risk management. Premiums paid by the bank build a cash value that grows tax-deferred, often at 4-6% annually through conservative separate accounts (e.g., bonds or index funds).⁵ Upon the insured's death, the bank receives the death benefit—typically 100-200% of premiums paid—entirely tax-free under IRC Section 101(j).⁶ This creates a "mortality credit" hedge: Banks pool risks across many lives, profiting from those who outlive averages while covering claims efficiently. Risk mitigation comes in layers. First, liquidity and stability: BOLI assets are exempt from FDIC insurance requirements and provide a high-quality, low-volatility holding that offsets volatile loan portfolios.

During the 2008 crisis, BOLI delivered steady returns when markets tanked.⁷ Second, employee benefit funding: It recovers costs for deferred compensation, retiree health plans, or supplemental executive retirement—expenses that can balloon to 20-30% of payroll.⁸ For instance, a mid-sized bank might buy $50 million in BOLI on 100 executives, using the $2-3 million annual premiums to fund benefits while earning $1-2 million in tax-free income yearly (via tax-free policy loans, which have a borrowing cost).⁹ Third, regulatory compliance: FDIC guidelines require robust risk assessments. BOLI's predictability (low credit risk, diversified carriers) provides a "safe harbor" for banks. This isn't just a metaphor; it's a literal regulatory mechanism. By following the clear, regulator-approved rulebook for purchasing and managing BOLI (such as annual board reviews and staying within capital concentration limits), a bank is deemed to have met the "safe and sound" standard and is protected from compliance penalties.¹⁰

Banks don't advertise BOLI—it's not a customer product but an internal tool, tucked into balance sheets as "other assets." As one industry report notes, "BOLI is frequently used to help offset... nonqualified benefit plan expenses," yet it's rarely spotlighted in annual reports to avoid scrutiny.¹¹ This discretion underscores its role: Not glamour, but grit.

How it Works: Simple Math & Mechanics

Permanent life insurance (like whole life or universal life) lasts your whole life and includes a savings component—unlike term insurance, which only covers you for a set time. Your premium pays for three things: (1) the cost of insurance (based on your risk of dying), (2) company fees, and (3) cash value that grows over time. This cash value earns interest or dividends on a tax-deferred basis, usually with a guaranteed 2–4% plus possible bonuses (LifeQuotes.com, 2024).¹² The math behind it uses actuarial present value (APV) to set fair premiums. For every $1 death benefit, the single premium is calculated as:

$$NSP = A_x = \sum [v^{k+1} \times {_{k}p_x} \times q_{x+k}]$$

Where:

v = 1/(1+i) (discounts future money)

ₖpₓ = chance you survive to age x+k

q₍ₓ₊ₖ₎ = chance of dying at age x+k (LifeQuotes.com, 2024).¹³

In real life, insurers use mortality tables (like the 2017 CSO) and assume 3–5% growth.¹⁴ For example, a healthy 40-year-old man buying $1 million coverage might pay $12,000–$15,000 per year. Early on, only ~$1,000 goes to insurance cost; the rest builds cash value, which grows like this: $CV_t = CV_{t-1} \times (1 + r) + (Premium – COI – Fees)$ (With r ≈ 4%) (LifeQuotes.com, 2024).¹⁵

The real power for you? Leverage. After 20 years, your internal rate of return (IRR) on the cash value could reach 5–7% net of fees. You can then access this cash value. This access is received tax-free precisely because it is structured as a loan from the insurer (using your cash value as collateral), not as income. These loans have a borrowing cost (e.g., 4–6% interest), which is typically not paid out-of-pocket but is instead deducted from the final tax-free death benefit. Unlike stocks, permanent life insurance is designed to be a stable, long-term asset, and this loan feature provides access to your cash value— (LifeQuotes.com, 2024).¹⁶

How Average Investors Can Replicate The BOLI Strategy

Individuals can buy max-funded permanent policies (e.g., overfund UL to minimize COI), treating it like a personal BOLI. Use cash value as a source of accessible capital for emergencies, business loans, real estate purchases or retirement—mirroring banks' liquidity buffer. For wealth transfer, you could place it in an Irrevocable Life Insurance Trust (ILIT) to bypass estate taxes (up to 40% on estates over $13.61 million in 2025).¹⁷ Banks scale this institutionally; you can start with $5,000-$10,000 annual premiums, as an example.

But most don't. Why? Cultural bias: 70% of Americans view life insurance as "just for death," not a living asset.¹⁸ Pundits like Dave Ramsey amplify this, calling whole life "the payday lender of the middle class" and a "gimmick" because "95% of policies lapse," urging "buy term and invest the difference."¹⁹ Yet, Ramsey overlooks tax advantages and guarantees; critics note his math ignores that "term investing" often underperforms due to taxes and volatility, while permanent policies are designed for stable, leveraged growth. As one rebuttal quips, "Dave's analysis... doesn't treat interest rates properly," assuming 12% stock returns that few achieve. ²⁰ Meanwhile, the "most investment-savvy" institutions—holding $200B+ in these "wastes"—prove their priority for stability over speculation. ²¹

Overcoming Underwriting Fear and the "Death Stigma"

Underwritingterrifies many: Medical exams, bloodwork, family history—fear of denial or high rates looms. But 80-90% qualify if honest; prepare by quitting smoking (rates drop 50% in 1 year) or disclosing conditions early.²² Agents can pre-screen via accelerated underwriting (no-exam for healthy applicants under 50).²³ The "death stigma": Buying insurance feels like tempting fate, rooted in mortality avoidance bias. Reframe it: "It's not about dying—it's about living fully, protecting what you've built." As behavioral experts advise, focus on legacy: "Life insurance is love made tangible—ensuring your family's story continues without hardship." ²⁴ Overcoming this unlocks its power.

Building Wealth, Transferring It, and Crafting Legacies: Why It's Easier Than Saving

Permanent life insurance builds wealth with tax-deferred growth and tax-free access to cash value via policy loans, transfers it income-tax-free at death, and helps create family legacies (like equal gifts to kids). For couples, “second-to-die” policies pay out after both pass—great for big estates (Pacific Life, n.d.).²⁵ Currently (2025), the federal estate tax only affects estates exceeding $13.99 million per person ($27.98 million for couples). Most Americans won’t owe it, so estate tax savings aren’t the main reason to buy (IRS, 2025).²⁶ But the real win is still easier than saving:

Saving $1 million on your own: Put away $15,000/year (same as a typical premium) at 7% for 30 years → you’d have ~$1.2 million

$$FV = PMT \times \frac{(1+r)^n - 1}{r}$$

But:

You pay taxes when you use it. If you die prior to 30 years you miss on accumulation – don’t get there or the market drops can wipe out gains at any time

With insurance, for example: Same $15,000/year → $1 million tax-free to heirs the day you die, plus you can access that cash value tax-free (as a policy loan with a borrowing cost) while living (LifeQuotes.com, 2024).²⁷ As one expert says: “Pay a little, get a lot—a 30-year-old can get $250k for $13/month” (LifeQuotes.com, 2024).²⁸ A $500,000 policy can fund college, charity, or family dreams—without touching your savings.

Bottom line: Even without estate taxes, life insurance gives instant protection, tax-deferred growth, tax-free access (via loans), and peace of mind—way easier than trying to-save-it-all-yourself. In sum, while Ramsey warns of "gimmicks," BOLI's $200B footprint shows institutions betting big on permanence.²⁹ For you? Ditch the stigma, embrace the math—it's your family's quiet revolution.

Important Disclosures

This commentary is for informational purposes only and should not be considered a recommendation to buy or sell any security or the provision of specific investment advice.

The opinions and forecasts expressed are those of Keaney Financial Services Corp. as of the date of this commentary. They are subject to change at any time based on market and other conditions and may or not come to pass.

The KFSC Macro Regime Model is a proprietary tool. Its analysis is based on historical data; however, it in no way guarantees future results or provides a guarantee against loss. Past performance is not indicative of future results.

Investing in commodities involves increased risks, such as political, economic, and currency instability, and rapid fluctuations, which can lead to significant volatility in an investor's holdings. Commodities may not be suitable for all investors.

All investing involves risk, including the possible loss of principal. Although important, asset allocation, risk management, and diversification strategies do not guarantee generating profits or shielding against losses. Please consult with your financial advisor to determine if the strategies discussed are suitable for your personal financial situation. Consult your qualified financial, legal, or tax advisor before making investment decisions.

Research Disclosure

Our research and data may include contributions from paid non-affiliated markets and macroeconomic analysts and economists. We have also incorporated multiple artificial intelligence (AI) platforms to assist us in researching, diagnosing, absorbing, analyzing, and illustrating data with greater efficiency. Because our management and strategies are data-research-driven, our goal is to utilize information that we believe to be accurate, validated across multiple sources where possible. It is critical for clients to understand, however, that all data is subject to error and. no amount of research or analysis can eliminate the inherent risks of investing or guarantee a specific outcome.

Footnotes

¹ The Money Advantage. (2025, July 14). What is bank-owned life insurance (BOLI)? https://themoneyadvantage.com/bank-owned-life-insurance/

² US Bank Locations. (n.d.). Banks ranked by life insurance assets. https://www.usbanklocations.com/bank-rank/life-insurance-assets.html

³ The Money Advantage. (2025, July 14). What is bank-owned life insurance (BOLI)? https://themoneyadvantage.com/bank-owned-life-insurance/

⁴ Ramsey, D. (2025, May 23). It's the payday lender of the middle class — Dave Ramsey rips whole life insurance. Yahoo Finance. https://finance.yahoo.com/news/payday-lender-middle-class-dave-000142858.html

⁵ Andesa Services. (2025, February 11). Is BOLI still viable for 2024 & beyond? https://andesaservices.com/blog/is-boli-still-viable-for-2024-beyond/

⁶ Borden Hamman. (n.d.). Insights: A comprehensive guide to IRS Tax Code 101(j). https://www.bordenhamman.com/wp-content/uploads/2016/12/101j-BHIM-Insights.pdf

⁷ Federal Reserve History. (n.d.). The great recession and its aftermath. https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath

⁸ Bureau of Labor Statistics. (2025). Employer costs for employee compensation - June 2025. https://www.bls.gov/news.release/pdf/ecec.pdf

⁹ ABA Banking Journal. (2021, January 4). BOLI: A stable asset in unstable times. https://bankingjournal.aba.com/2020/12/boli-a-stable-asset-in-unstable-times/

¹⁰ Federal Deposit Insurance Corporation. (2004). FIL-127-04: Risk management of life insurance. https://www.fdic.gov/news/financial-institution-letters/2004/fil12704risk.html

¹¹ Independent Community Bankers of America. (2021, March 1). Here are the benefits of bank-owned life insurance. https://www.independentbanker.org/article/2021/03/01/here-are-the-benefits-of-bank-owned-life-insurance

¹² LifeQuotes.com. (2024, January 16). Life insurance math made simple. https://lifequotes.com/articles/simplified-life-insurance-mathematics/

¹³ LifeQuotes.com. (2024, January 16). Life insurance math made simple. https://lifequotes.com/articles/simplified-life-insurance-mathematics/

¹⁴ Society of Actuaries. (n.d.). 2017 Commissioners Standard Ordinary (CSO) tables. https://www.soa.org/resources/experience-studies/2015/2017-cso-tables/

¹⁵ LifeQuotes.com. (2024, January 16). Life insurance math made simple. https://lifequotes.com/articles/simplified-life-insurance-mathematics/

¹⁶ The Insurance Pro Blog. (2021, August 16). What can you expect your whole life insurance rate of return to be? https://theinsuranceproblog.com/what-can-you-expect-your-whole-life-insurance-rate-of-return-to-be/

¹⁷ Internal Revenue Service. (2025). Estate tax. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax

¹⁸ The Zebra. (2025, November 10). Life insurance statistics in 2025. https://www.thezebra.com/resources/research/life-insurance-statistics/

¹⁹ Ramsey, D. (2025, May 23). It's the payday lender of the middle class — Dave Ramsey rips whole life insurance. Yahoo Finance. https://finance.yahoo.com/news/payday-lender-middle-class-dave-000142858.html

²⁰ Murphy, R. P. (2022, May 23). Why Dave Ramsey is wrong about whole life insurance. Infinite Banking. https://infinitebanking.org/banknotes/why-dave-ramsey-is-wrong-about-whole-life-insurance/

²¹ The Money Advantage. (2025, July 14). What is bank-owned life insurance (BOLI)? https://themoneyadvantage.com/bank-owned-life-insurance/

²² SWBC. (2020, November 18). How quitting smoking can impact your life insurance premium. https://blog.swbc.com/personalhub/how-quitting-smoking-can-impact-your-life-insurance-premium

²³ Forbes Advisor. (2025, October 14). 3 best no-exam life insurance of 2025. https://www.forbes.com/advisor/life-insurance/best-no-exam-life-insurance/

²⁴ Sustainable Markets. (2025, March 16). Legacy & love: Life insurance quotes to motivate you. https://www2.sustainable-markets.org/post/legacy-and-love-life-insurance-quotes-to-motivate-you

²⁵ Pacific Life. (n.d.). Using life insurance for generational wealth transfer. https://www.pacificlife.com/insights-articles/using-life-insurance-for-generational-wealth-transfer.html

²⁶ Internal Revenue Service. (2025). Estate tax. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax

²⁷ LifeQuotes.com. (2024, January 16). Life insurance math made simple. https://lifequotes.com/articles/simplified-life-insurance-mathematics/

²⁸ LifeQuotes.com. (2024, January 16). Life insurance math made simple. https://lifequotes.com/articles/simplified-life-insurance-mathematics/

²⁹ The Money Advantage. (2025, July 14). What is bank-owned life insurance (BOLI)? https://themoneyadvantage.com/bank-owned-life-insurance/