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IZALE Financial Group

Blog

Coronavirus Shakes the World Markets - BOLI Provides Stable, Predictable Earnings

3/4/2020

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by R. Scott Richardson, JD, CLU, ChFC Founder & CEO IZALE Financial Group
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As world economies are shaken by the Coronavirus, 
 
  • The Federal Reserve March 3, 2020 announced an emergency rate cut of 50bps. Are there more to come? Less earnings on Fed Funds.
  • Today, the 10-year UST fell BELOW 1%. Well-below its all-time low.
  • The 5-year UST is below that at about 0.75%.
  • Our clients are sharing that their corporate bond yields have fallen to below 2.25%.
The only silver lining is that you should have some gains in the bond portfolio. But now what? Unless you have a robust loan pipeline, where do you go with maturing bonds or to invest the cash from loan payments?
 
Bank-Owned Life Insurance or BOLI is used by over 4,000 financial institutions with over $180 BILLION of capital invested in it. What makes BOLI so attractive?
 
  • Guaranteed minimum crediting rates of 1% - 4%. You are reading that correctly.
  • Current yields (after cost of insurance) of 2.75% - 3.5%, depending on purchase size and insured demographics. Tax-effect that, and it compares with some new loan rates.
  • No mark-to-market risk. With general account or hybrid account BOLI, a change in market rates has zero impact on the balance sheet value.
  • There are even products with an “index” crediting rate that could deliver far more yield than traditional BOLI.
 
Call or email us today. Let’s talk about the vital role that BOLI can play on your balance sheet and let us help you with the next BOLI purchase.
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Are You Ready for Indexed BOLI?

4/4/2019

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by Scott Richardson, CEO/President of IZALE Financial Group
Pictureclick for more on BOLI
Despite lower corporate tax rates and a narrower spread between traditional bank-eligible investments and Bank/Business-Owned Life Insurance, BOLI continues be a powerful asset for your balance sheet. The earnings are competitive for the risk and accrue without any tax provisions. The book value is stable - rising interest rates won't result in mark-to-market adjustments like with bonds. At its core it's still life insurance and we've seen firsthand how the life insurance proceeds have provided invaluable benefits to an insured officer's family as well as to the institution.
 
BOLI crediting rates have remained somewhat stable since the beginning of 2018, and programs that deliver 3% or more yield out of the gate are readily available. While those rates have remained stable, market rates have moved generally upward even if in fits and starts. As of March 25, the 10-year Treasury bond was a mere 3 bps higher yield than the 13-week Treasury bill (with an inversion with shorter duration); the result is about 75bps-100bps of spread between 10-year Treasuries and BOLI. That's down from the historical average of over 200bps. That narrow spread has many institutions re-evaluating their inforce BOLI or delaying their next purchase of it. The thought goes that until there is greater reward for the risk of going longer, stay short.  
 
Ignoring the immediate lost earnings from staying on the sidelines, trying to time entry to the markets is challenging to say the least. What if instead of measuring your BOLI returns against fixed-income assets like bonds, you could measure them against an equity-index? Before you get too far on the ledge - we're not talking about exposing cash value to an index; cash values will always have stable book value treatment. What we're talking about is a transparent way to determine the crediting rate by measuring the change in an index, most commonly the S&P 500.
 
"Indexed Universal Life" or IUL has been available on a retail basis for more than 20 years, and in 2018 IUL accounted for almost 30% of permanent life sales. While widely available on a retail basis, it wasn't until recently that IUL became available with a single-premium, 100%-beginning-cash-value design associated with BOLI.

With IUL, the carrier offers a "floor" or minimum crediting rate (along with full book-value treatment) and a "cap" or maximum crediting rate that can flow from the change in the index.  
  • If the index is negative or below the floor, your crediting rate is the floor.  
  • If the index is greater than the cap, your crediting rate is the cap.  
  • If the index is in between, your crediting rate is the index.
While your crediting rate from month-to-month will vary between the floor and the cap, when back-tested against 50 years of actual S&P performance, IUL has impressive results. The table below shows the current floor and cap for two carriers that offer IUL BOLI. One is decidedly more conservative than the other in its design, however, the expected rewards may be worth the "less conservative" design.

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Decoding Tax Reform - Advising the Advisor via AALU

4/9/2018

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COLI/BOLI Marketplace - Potential Impact of the Transfer for Value Provision
​in the Tax Cuts and Jobs Act of 2017

H.R. 1 included language modifying the Transfer for Value rules related to certain life insurance contracts subject to new reportable policy sale requirements. That language carries with it a narrow, but important potential implication for the COLI/BOLI marketplace. AALU has already established with the tax writers that this potential impact was not intended, and we are working with them on a resolution.
 
RELEVANT FACT PATTERN: Entity A wants to acquire Entity B who owns a block of COLI/BOLI. The segment of that block of life insurance related to the lives of former employees is potentially subject to the Transfer for Value (TFV) rule in the Code.
 
POTENTIAL TAX IMPACT: If subject to the TFV rule then the tax-free death benefit (on the block of former employees) is limited to the amount of consideration paid for the policies plus the premiums subsequently paid by Entity A.
 
AALU is working on a solution: We are working with the Board and Counsel to secure positive resolution either through regulatory guidance or statutory technical correction.Through meetings with the Ways & Means Committee, Senate Finance Committee, the Joint Committee on Taxation, and the Treasury Department we have established that this potential impact was not intended.

​DISCLAIMER
This information is intended solely for information and education and is not intended for use as legal or tax advice. Reference herein to any specific tax or other planning strategy, process, product or service does not constitute promotion, endorsement or recommendation by AALU. Persons should consult with their own legal or tax advisors for specific legal or tax advice.
Learn more, courtesy of Ken Kies–AALU Counsel at Federal Policy Group
​or call your IZALE Representative Today!
Click Here
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Announcing:  The Value of BOLI - Bank or Business Owned Life Insurance on FMStv

3/16/2018

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We are proud so share this amazing opportunity to learn from Scott Richardson, CEO/Founder of IZALE Financial Group, plus his remarkable team Chris Richardson, Jonathan Barnes, and Phil Aderton as to why they are the go-to BOLI experts and why BOLI is a viable solution today for financial institutions to attract, reward and retain their key talent – their most valuable asset. 
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IZALE Client Success Story:  State Bank of Toulon, Toulon, IL

9/5/2017

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“We have had BOLI for 25+ years at the State Bank of Toulon. I have been directly involved for the last 10 of those years having it in my benefit plan. Since talking with Phil Aderton at the 2016 CBAI Director’s Conference, I have talked more to the IZALE representatives than our previous BOLI provider. Why? Because our previous provider made most of their information self-service, i.e. available on their web portal but not from an actual live person. To work with the IZALE team – Phil, Scott and Jeff – is like working with people right here in my office. Phil even comes to my bank to see me!

Scott Richardson presented at our board meeting and modified the design of our original BOLI program. We did not fully know, or completely understand, before IZALE the true advantages of BOLI. The IZALE Team spent time explaining what we purchased so it gave us confidence that what we got was right for us. Personally, I better understand my benefit plan. Even better yet, my executive staff fully understands what they have too!​
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Doug Parrott, President & CEO Call for an IZALE reference!
What stood out the most for me was that IZALE provided an executive benefit plan that gave us the ability to meet both our short term and long term goals. Giving our bank additional leverage we did not previously realize we could have was enlightening. BOLI was something in the old days thought of as a way to pay for the replacement of the executive, like “key man insurance.” Today it has expanded to serve our bank as an incentive for employee retention. My values that lead me as a community banker is to serve my community which includes my up and coming leaders of our institution. I want them to stay in the community and at the bank, and by staying, be rewarded!” Call me to hear more about IZALE 309-286-2861.
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Phil Aderton, The Community Bankers Coach

Contact Phil Aderton today!

630-561-9071 or email
As a fourth generation Illinois Community Banker, I understand not just the needs of the bank but that of the people they serve. With IZALE's approach our tagline says it all. We value people by helping them improve their earnings while protecting their greatest asset–their staff and their customers.
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​Effective June 9, 2017, all individuals who provide advice to retirement plans, including Individual Retirement Accounts (IRAs), must abide by the fiduciary standard.  What does the fiduciary standard mean?  This means that your advisor must put your interests first before their own or that of the firm, make prudent recommendations, charge reasonable compensation and make no misrepresentations to you regarding recommended investments.  The recommendations made by your advisor must be based upon your specific investment needs and objectives.  The fiduciary standard is applicable to any recommendations that your advisor makes to you, the client, for your retirement account.
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This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every advisor listed. For additional information, please contact Scott Richardson at 855-492-5334 .