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ARTICLE · 04 NOVEMBER 2026

Turning Straw Into Gold: BOLI Exchanges And The Open Insurable Interest Question

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Recent IRS regulations have cleared federal tax obstacles for BOLI exchanges, enabling banks to restructure legacy portfolios and capture significantly higher returns. However, state insurable interest requirements now present the primary challenge, particularly for coverage on former employees, with only a handful of states having addressed this emerging issue legislatively.

United StatesFinance and Banking
Henry Bregstein
Henry Bregstein
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In July, we wrote about the final regulations under T.D. 10052, which confirm that a Section 1035 exchange is no longer, by itself, a reportable policy sale or a transfer for valuable consideration.1 We flagged one caveat at the time: the new contract must still satisfy Section 7702 and applicable state insurable interest laws. For holders of bank-owned life insurance (BOLI), that caveat has quickly become the main event. 

Why BOLI holders are looking now

Many BOLI portfolios were purchased when interest rates were substantially lower. Those contracts often reflect rates from a different era, while carriers today are issuing contracts priced off a much higher-rate environment.

"Banks have been sitting on legacy BOLI that no longer reflects the rate environment, and the 1035 regulations removed a real obstacle to fixing that," said Michael Ori, Co-founder and Managing Partner of Institutional Architects. "In our experience, a well-executed restructuring can pick up roughly 200 to

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