For over twenty years, banks have utilized bank-owned life insurance (BOLI) as an effective tool for offsetting expenses associated with employee benefit plans. While originally most common at large banks, BOLI has now become prevalent with community banks.

BOLI is life insurance purchased by a bank on its key employees (generally, BOLI can be purchased on up to the 35% most highly compensated employees). Premium payments are made by the bank, which owns the policies and is typically the beneficiary of all, or a portion of, policy death benefits.

While a bank's rationale for purchasing BOLI has fluctuated little in the past twenty years, the product landscape has evolved tremendously. This evolution has resulted in improved product options for banks -- General Account, Separate Account, and Hybrid BOLI products.