Option permits efficient investment in insurance carrier's diverse portfolio.
by Scott Richardson, Founder & CEO of IZALE for CUES's Credit Union Management Magazine
Click image & view article on CUES website! Business-owned life insurance, or BOLI, has been used by financial institutions since the early 1980s as an alternative “investment.” As of June 30, banks and credit unions together reported owning $163.7 billion in cash surrender values, with over 70 percent of banks with more than $100 million in assets and almost 30 percent of credit unions with more than $50 million in assets owning BOLI. With such a well-worn path, use of this asset should continue to rise, even if expected new guidance on BOLI is put in place by the National Credit Union Administration in the near term.BOLI is a life insurance policy purchased on the credit union’s key employees. Such a policy is typically purchased with a single premium, and the credit union is both the owner and beneficiary. BOLI is permissible by NCUA under Rule 701.19, and is carried as an “other asset” on the balance sheet. The growth in cash surrender value of the policy is considered non-interest income.
If the key employee dies, the credit union receives the death benefit from the policy. While nearly all credit unions share some of the life insurance gain in excess of cash surrender value with the key employee’s designated beneficiaries, BOLI provides no direct cash or retirement benefit to the key employees themselves.
One of the most frequent reasons more credit unions don’t adopt BOLI is the misunderstanding that many boards often harbor about it. As noted above, BOLI is not an executive benefit, but an alternative for the traditional investment portfolio. What makes BOLI attractive is the ability to efficiently invest in an insurance carrier’s balance sheet. What does this mean, exactly?
If the key employee dies, the credit union receives the death benefit from the policy. While nearly all credit unions share some of the life insurance gain in excess of cash surrender value with the key employee’s designated beneficiaries, BOLI provides no direct cash or retirement benefit to the key employees themselves.
One of the most frequent reasons more credit unions don’t adopt BOLI is the misunderstanding that many boards often harbor about it. As noted above, BOLI is not an executive benefit, but an alternative for the traditional investment portfolio. What makes BOLI attractive is the ability to efficiently invest in an insurance carrier’s balance sheet. What does this mean, exactly?
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