4 Myths About Bank-and Company-Owned Life Insurance

However, effectively breaking down these misconceptions and helping clients understand how business life insurance can benefit them is going to be critical for advisors – especially over the next few years.

The U.S. COLI industry has seen tremendous growth, going from $2 billion in sales premium in 2021 to $5 billion in 2024 – an annual growth rate of 35%, according to an IBIS U.S. COLI market analysis for the period from 2021 through 2024.

This presents a significant opportunity for advisors looking to grow their practice, especially as industry sales momentum continues to build.

While there are a lot of mixed messages out there about the benefits and drawbacks of business life insurance, these products can be powerful additions to business owners' portfolios – and it's up to advisors to help them understand how these policies can fit into their financial plan.

As we recognize Life Insurance Awareness Month this September, here are some common misconceptions that may be turning your clients away from business life insurance policies and opportunities for you to address them.

Myth 1: COLI / BOLI policies are just like personal life insurance.

Before we dive into this myth, let's break down what COLI and BOLI policies are.

COLI and BOLI policies are life insurance policies taken out on critical employees, with COLI having companies paying the insurance premiums and receiving the death benefit if a covered employee passes away, while banks pay for and receive benefits with BOLI.

Although COLI and BOLI policies may look like individual life insurance on the surface, they are institutional policies designed to integrate into the long-term strategic plan of a business.

These policies offer significant customization far beyond what standard retail policies can offer, making them powerful institutional tools.

They also offer features not available in the individual market.

For example, business life insurance offers guaranteed issue underwriting, meaning eligible groups do not need to complete medical exams.

COLI and BOLI policies also offer institutional pricing and can be used to fund non-qualified deferred compensation (NQDC) plans or supplemental executive retirement plans (SERPs) for key executives.

Myth 2: COLI / BOLI policies only financially benefit businesses.

COLI and BOLI policies offer financial benefits, but their real strength is in helping businesses attract and retain top-tier talent.

By informally funding executive benefit programs, companies can reward key employees and encourage long-term loyalty.

Think of it like building a championship team: Just as a great coach draws top players, these policies can help create a stable, appealing environment for high performers, driving continuity and a competitive advantage.

Myth 3: Business life insurance policies insure all company employees.

This perception stems from early misuse of life insurance policies.

Several decades ago, some corporations began purchasing COLI policies on lower-wage workers without telling them. That was a controversial move, because the employers could collect death benefits off employees without their consent.

As a result, lawmakers enacted the COLI Best Practices Act, establishing strict rules and regulatory guidelines around policy usage.

Now, employees must meet minimum compensation thresholds and be in eligible roles to participate.

These employees are typically executives who are highly compensated individuals. Employers must also inform their employees that they intend to insure them and obtain written consent during and after an employee's tenure.

Myth 4: Business life insurance isn't for mom-and-pop businesses.

One of the great things about COLI and BOLI policies is that they can be uniquely customized, meaning businesses of all sizes can benefit from them.

In fact, some underwriting guidelines allow companies to insure a single executive, depending on the needs of the business.

If you're unsure whether a company's size is eligible, contact a policy provider directly.

Whether it's a buy/sell agreement for a family-owned business or succession planning for a startup, COLI and BOLI are scalable to provide stability and protection at every level.

Helping business owner clients incorporate business life insurance into their financial planning can protect their companies and ensure smooth leadership transitions – but we need advisors to break down common misconceptions about these policies to continue to make this happen.

By helping your clients view COLI and BOLI as strategic financial tools – not just insurance policies – you can help them manage future obligations, fund key talent strategies and maintain long-term stability while also growing your own practice in a meaningful way.

Jessica Dowdy is head of institutional life insurance at Nationwide Financial.

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