Amanda Rogers

Why Do Credit Unions Use Corporate-Owned Life Insurance (COLI)?

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Credit unions use the cash value of Corporate-Owned Life Insurance (COLI) as a tool to help them generate higher yields to offset the rising costs associated with employee benefits programs, such as health insurance and retirement. 

The death benefit from a life insurance policy can be used to help the organization shore-up underfunded benefit programs, pay off debts, fund future expenses, or even shared with the insured employee’s family to provide financial security.

Scott B. Hinkle, Principal at Acumen Insurance Solutions and the leader of the firm’s Credit Union practice, explains more in the video.

What is Corporate-Owned Life Insurance?

Corporate-Owned Life Insurance (COLI) is a type of life insurance policy that is owned by a company and pays benefits to the company upon the death of the insured employee. The premiums for COLI policies are paid by the company, making them an attractive way for businesses to provide death benefits to the organization and, potentially, its key employees.

When properly structured, the death benefit from a COLI policy can be received tax-free by the company and policy beneficiaries, making them an effective tool for tax and estate planning.

See another video from Scott and learn more about COLI in our Mark-to-Market and COLI blog.

Reasons Credit Unions use COLI

There are a few reasons why credit unions might choose to use COLI. First, it can be a way to generate additional income for the credit union. This income can then be used to help offset operating costs or to fund other activities. 

Additionally, COLI can also help to diversify the credit union’s investment portfolio. By investing in COLI, the credit union can reduce its overall risk. 

COLI can also provide death benefits to the insured executive’s families as a benefit of employment with the credit union, which can help the organization attract and retain its key people. 

Credit unions may also use COLI cash value earnings to fund executive retirement programs. These programs provide key executives with additional financial incentives to stay with the credit union and continue to perform at a high level.

Takeaways from Scott

The NCUA (National Credit Union Administration) code allows credit unions to invest in financial instruments that they otherwise would not be able to invest in, with the goal being able to offset the rapidly-rising costs of employee benefit expenses. 

The NCUA realizes that the way most credit unions invest with the bulk of their assets is very conservative, and therefore has a historically lower rate of return. For many credit unions, they invest most of their assets in 10 years or less debt securities or bonds, which have a certain yield profile. 

However, under this Section 20 of the Call Report, the NCUA allows credit unions to invest in what are called otherwise impermissible investments, which have the potential to earn more than traditional investments while still maintaining a very high level of safety and liquidity. 

Life insurance contracts are one type of otherwise impermissible investment, and they offer the credit union a higher rate of return, a death benefit, and safety. The goal is for the credit union to use these alternative investments to keep up with the rising cost of benefit expenses.

A Final Word

Credit unions and nonprofits have to provide good benefits, but the ways they are allowed to make money from investments is very limited. Section 20 of a credit union’s Call Report lists the “otherwise impermissible” investments like COLI, where the yields can be higher. They can do this to offset the rising costs of executive compensations (ie: benefits like health insurance and 401(k) matching), which would be too expensive otherwise. 

Read on to learn about how COLI can help fund executive comp packages. 
COLI can be a very valuable tool for credit unions. To find out more about how COLI can benefit your credit union, reach out to us today!

nonprofit team taking a selfie
Amanda Rogers

Compensation Guidelines for Nonprofits

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Nonprofit compensation guidelines are different from traditional businesses. 

Why? A not-for-profit or nonprofit organization qualifies for “tax-exempt status by the [Internal Revenue Service (IRS)] because its mission and purpose are to further a social cause and provide a public benefit.”

Therefore, a nonprofit that has been recognized by the IRS as being tax-exempt by virtue of its charitable programs—also known as a registered 501(c)(3)—must reinvest any earned funds back into the organization.

So, how do nonprofits determine compensation? Compensation for nonprofit employees must be agreed upon by nonprofit leaders and staff, which can be tricky. This considered, nonprofit compensation policies are created to avoid conflicts of interest.

Let’s chat more about compensation guidelines for nonprofits and tax-exempt organizations below.

What is a Nonprofit Compensation Policy?

Nonprofit compensation policies summarize how compensation packages are determined for nonprofit staff members. More specifically, these policies summarize how salaries and benefits are decided for executives.

Guidelines on 501(c)(3) Compensation Packages

Below, we’ve listed compensation guidelines—set by the Internal Revenue Service (IRS)—for nonprofits and tax-exempt organizations. These policies require that nonprofit and tax-exempt salaries:

  • Are reasonable, but not excessive: This requirement helps prevent “fraudulent behavior and preserves the integrity of nonprofits.” Some individuals try to take advantage of nonprofits’ tax exemption status, setting up false organizations to earn additional money.
  • Include benefits and bonuses: Compensation must be reported in its entirety (incl. any benefits and/or bonuses provided). Everything must be properly accounted for.
  • Are reported honestly each year: According to the IRS, “a tax-exempt organization must file an annual information return or notice with the IRS,” including a Form 990. “Form 990 is the IRS’ primary tool for gathering information about tax-exempt organizations.” Organizations use Form 990 to share information with the public about their programs, including the salaries of the nonprofit’s five highest-paid employees.

Note: It’s highly recommended that your board of directors actively set compensation packages for executives. These packages should be reviewed annually, and such conversations will help determine salaries for all other employees.

Penalties for Excessive Compensation

Compensation guidelines for nonprofits and tax-exempt organizations are in place to avoid excessive compensation and corruption.

Nonprofit organizations that are found paying their executives excessively are subject to heavy penalties from the IRS. These penalties may include:

  • An official IRS inquiry or a nonprofit audit
  • Investigation from the state, and
  • Heavy fines

Follow the rules and ensure your nonprofit compensation policies are clear to avoid such penalties. Typically nonprofit policies include the following.

What Should You Include in Your Nonprofit Policy?

Although no two policies are the same, a nonprofit compensation policy will typically include the following information:

  • A policy overview
  • What parties are affected by the policy
  • Compensation structure and elements
  • What the compensation approval process looks like
  • Market data (compensation comparison to other nonprofits)
  • Schedule of compensation deliberations

Executive Retention Plan Designs for Nonprofits

Nonprofit organizations, including hospitals, universities, and foundations, are often competing with for-profit companies to attract, reward, and retain top talent.

Since nonprofits cannot offer equity, they often achieve their key person acquisition and retention goals by using supplemental executive retirement plans funded with life insurance.

At Acumen Insurance Solutions, we’ve developed several proprietary executive retirement and retention plan designs for nonprofits to maximize:

  • Tax efficiency
  • Liquidity
  • Flexibility, and
  • Ease of administration

With our plans, the sponsoring organization will not only recover the entire cost of the benefit provided to the executive but will earn a very real rate of return on committed dollars.

We also show organizations how to help pay for these plans by repositioning low-yielding assets into a policy that provides competitive current yields without sacrificing safety or liquidity.

Interested in learning more? Contact us today, then read on for more information on the permanent life insurance options available to you.

Close-up of couple signing contract with insurance agent in the office.
The Acumen Team

Using CUOLI to Fund Section 20 and 21

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Did you know that credit unions have some unique opportunities to invest in products and services that are typically off-limits? NCUA Sections 20 and 21 allow credit unions to contribute to investments that are typically impermissible, including credit union-owned life insurance (“CUOLI” or “COLI”). 

This can be a great way for credit unions to diversify their investment portfolios and grow their assets. In this blog post, we will discuss Sections 20 and 21 in more detail and explain how credit unions can take advantage of these provisions!

The Current Investment Environment 

Today’s investment landscape isn’t promising and is characterized by:

  • Investment return volatility
  • Low interest rates
  • Declining loan demand
  • Concerns about an economic recession

So, what’s the solution for credit unions that are trying to maximize returns? Credit unions must look to investments that minimize volatility, maximize predictability, and maximize flexibility. The solution is using credit union-owned life insurance (“CUOLI” or “COLI”) to fund Sections 20 and 21.

Under Sections 20 and 21 of the call report required by the National Credit Union Administration (NCUA), credit unions are permitted to allocate funds to “otherwise impermissible investments.” This includes credit union-owned life insurance for certain specialized and important purposes.

Let’s talk more about using CUOLI to fund Sections 20 and 21 below.

Sections 20 and 21 of the (NCUA) Act 

Sections 20 and 21 allow credit unions to invest in certain products and services that are typically not allowed. This includes credit union-owned life insurance (“CUOLI” or “COLI”). CUOLI can be a great way for credit unions to diversify their investment portfolios and grow their assets.

There are many benefits to investing in CUOLI, including:

  • Diversification: By investing in CUOLI, credit unions can diversify their portfolio and reduce risk.
  • Asset growth: CUOLI can be a great way for credit unions to grow their assets.
  • Protection from creditors: CUOLI can help credit unions protect their assets from creditors in the event of bankruptcy.
  • Death benefit: CUOLI policies typically have a death benefit that can be used to pay off debts or fund other expenses.

Section 20

Section 20 of your quarterly call report addresses the types of assets a credit union may use to pre-fund employee benefits (i.e. health insurance and executive compensation plans).

With costs of employee benefits rising, however, using these safe and higher-yielding investment options to offset them allows more of the credit union’s assets to go to member initiatives.

Most state regulators allow credit unions to allocate up to 25% of net worth to pre-fund employee benefit expenses in Section 20.*

Section 21

Charitable giving is at the core of most credit union missions. 

Section 21 addresses the types of assets a credit union may use to fund its charitable donation account (CDA). In most states, credit unions can pre-fund CDAs with up to 5% of net worth under Section 21.*

Therefore, charitable donation accounts give your credit union the ability to give more efficiently.

Using Credit Union-Owned Life Insurance to Fund Section 20 and 21

When looking at these assets, credit union-owned life insurance can offer marked benefits, enhance stability, and provide higher yields when compared to the types of assets that regulators consider “otherwise impermissible,” which include:

  • Life insurance
  • Securities (mutual funds, stocks, ETFs, bonds)
  • Annuities

What is Credit Union-Owned Life Insurance?

For those who are not familiar with credit union-owned life insurance, it’s very similar to what has been used by commercial banks for over 40 years. In fact, 86% of the top 50 banks in the United States use bank-owned life insurance (BOLI) as an asset to offset employee benefit costs.

In addition to pre-funding benefit expenses and mitigating key-person risks, commercial banks have used these types of assets as an investment tool that offers a very competitive rate with strong levels of safety and liquidity.

Funding Section 20 and 21 Using Credit Union-Owned Life Insurance

Most state regulators* allow credit unions to place up to 25% of their net worths in Section 20 assets and up to 5% in Section 21 assets, with a number of specific caveats. One, for example, is that no more than 15% can be allocated to a single life insurance carrier when using CUOLI.

Interested in learning more? We’ve just recently conducted a webinar where we:

  • Compared CUOLI vs. Other Alternatives
  • Walked through FASB ASU 2016-01 and Mark-to-Market accounting impacts
  • Discovered how to restructure existing CUOLI policies to increase yields
  • Discussed the flexibility options and liquidity benefits of institutional life insurance policies

Fill out this contact form for more information on the full “Using CUOLI to Fund Section 20 and 21” webinar. Or, check out this blog post, “Section 20 vs. Section 21: What’s the Difference?“

*Check your state’s regulations to verify the CUOLI capacity percentages.

executive's desk overlooking a city
Amanda Rogers

How to Retain Top Talent Using Executive Compensation

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Executive compensation is one of the most important tools that you can use to retain top talent in your organization. By providing a competitive salary and using executive benefits, like corporate-owned life insurance (COLI), you can attract and keep the best employees. 

COLI is a great way to fund employee benefit programs, like health insurance and retirement plans. In this blog post, we will discuss how executive compensation can help you retain top talent in your organization!

Employee Retention

The effects of poor employee retention and high turnover within a business are catastrophic. In fact, poor employee retention can lead to:

  • Decreased team morale
  • Reduced employee productivity
  • Expensive recruitment efforts, and
  • Time being wasted

Today, employee retention goes beyond offering company-wide happy hours and snacks in the office (those strategies will only get you so far!).

Powerful compensation programs — particularly those that include executive compensation — will set you apart in the hiring and retention game.

But how can you fund these benefits? Let’s talk about how to retain top talent using executive compensation; but first, an overview of executive comp plans.

Executive Compensation Plans: The Basics

Like a snowflake, no two compensation plans are the same. There are a variety of benefits with varying degrees of attractiveness that can be bundled together in compensation design.

(Secret’s out: It’s not all about the cash!)

Executive compensation plans typically consist of the following elements:

  • Base salary (cash compensation)
  • Short-term incentive or incentive compensation (i.e. an annual bonus)
  • Long-term incentive (deferred compensation)
  • Additional benefits and perquisites

Salary and Short-term Incentives

When it comes to executive compensation, there are two main types of benefits: salary and bonuses. Salary is the most common type of executive compensation, and it is important to offer a competitive salary in order to attract and retain top talent. Bonuses are also a great way to incentivize employees and show them that they are valued by the organization.

Long-term and Additional Benefits

COLI is a type of long-term incentive, executive compensation that can be used to fund employee benefit programs. COLI is a life insurance policy that is owned by the organization and pays out benefits to the employees in the event of their death. This type of executive compensation can be used to fund health insurance and retirement plans for employees.

Not only does executive compensation help with employee retention, but it can also be used to fund other employee benefits programs. For example, corporate-owned life insurance (COLI) can be used to provide death benefits to employees’ families or to pay for medical expenses.

Corporate-Owned Life Insurance (COLI)

Of course, corporate-owned life insurance (COLI) can play a crucial part in many deferred compensation plans for executives. Let’s discuss what this might look like and its benefits.

COLI is an asset on the employer’s balance sheet. It has a cash value component that grows faster than other safe investments, which can be used to offset the rising costs of employee benefits like health insurance and executive retirement plans. It also has a death benefit component that can allow the employer to recover all of its costs and more. The employer also has the option to share a portion of the death benefit with the insured key employee’s beneficiaries, serving as a meaningful retention tool (Golden Handcuff). 

As mentioned, the higher earnings generated by COLI can be used to offset the costs of other retention tools like employee benefit plans. These may include executive retirement arrangements funded with additional life insurance policies that can provide both an incentive-based retirement benefit to the key employee and a death benefit to his or her beneficiaries.

What is Corporate-Owned Life Insurance?

Life insurance is a contract between a policy owner and an insurer, whereby the insurer promises to pay a designated beneficiary a sum of money, called a “death benefit,” upon the passing of the insured person, in exchange for a premium, paid as a lump sum or over time. 

With corporate-owned life insurance (COLI), the insured person is a key employee. The beneficiary may be the organization, the key employee’s heirs, or a combination. Similar policies, called bank-owned life insurance (BOLI), have been used by commercial banks for nearly 40 years.

Death benefits can be used by the organization to protect against the economic loss caused by the passing of a key person. They can also be directed to the executive’s beneficiaries to reward and incentivize performance and longevity, serving as a valuable retention and family protection tool.  

COLI designs also include a substantial cash value account, which grows tax-deferred and can be accessed tax-free via policy loans and withdrawals of principal to eventually support the agreed-upon retirement benefit, generally paid out over a period of years. 

Why Corporate-Owned Life Insurance?

There are various benefits when it comes to corporate-owned life insurance. This particular investment vehicle:

  1. Is Safe: COLI policies are issued by some of the world’s strongest insurance carriers, some of which have been around for over 150 years.
  2. Is Liquid: In the event that you choose to redeploy all or a portion of your capital elsewhere, you have the ability to do so without penalty for exit with many of the policy designs.
  3. Provides Meaningful Rates of Return: These cash values of these policies are currently earning very meaningful current rates of return. In fact, they sit somewhere between 2.5-and-6.0%, depending upon the class of policy selected, with guarantees against loss and without direct market exposure.*

Moreover, given these benefits, COLI allows organizations to balance the cost of employee benefit programs while potentially enjoying higher yields than the typical “safe” investments.

Finally, one of the most attractive features of properly-designed executive compensation plans is that they’re highly customized and tailored to an individual executive or organization. The benefits from both the death benefit and cash value components can be allocated differently depending on the situation.   

A Final Word

At Acumen Insurance Solutions, we focus on ways that we can leverage tools like COLI to make your organization’s investments support executive compensation programs that inspire growth and ensure employee retention.

COLI policies are an appealing executive compensation tool because they offer a number of benefits for both employers and employees. For employers, COLI policies can help reduce turnover and attract top talent. For employees, COLI policies can provide financial security in the event of their death.

Interested in learning more about COLI? Read on in our article “Why CUOLI is the Best “Otherwise Impermissible Investment” for Your Credit Union.”

Or, contact us today to learn more.

*Disclaimer: Policy performance is based on current rates as charges, and some values are not guaranteed. These policies are not considered securities. Guarantees are based on the claims-paying ability of the underlying insurance carrier. Policies are not FDIC-insured. Pricing can be based on many factors, including the insured’s age, gender, and health. Please refer to a current policy illustration for details. Please refer to 26 U.S. Code §101(a) regarding tax-fee death benefit and 26 U.S. Code § 7702 (a) (g) regarding tax treatment of cash value. Medical and financial underwriting is required. Excessive policy withdrawals and loans may cause the policy to lapse, which will result in the loss of death benefit and adverse tax consequences. Acumen Insurance Solutions, LLC does not provide tax, legal, or investment advice, and is not FINRA registered.

Life insurance paperwork on a table with a pen on top of it and dollar bills to the side.
Amanda Rogers

The Importance of Understanding Split-Dollar Insurance

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Split-dollar life insurance is a unique type of life insurance policy that can be extremely beneficial for businesses, including nonprofits and credit unions, and their key employees. Unlike other types of life insurance policies, split-dollar allows the organization to share in the risk and rewards associated with the policy.

A split-dollar life insurance arrangement is an executive compensation tool that involves an agreement between employer and employee to ‘split’ the benefits and ownership rights of a life insurance policy.

This type of arrangement can provide significant advantages for both the employer and the employee, making it a popular choice for many types of organizations. In this blog post, we will learn more about split-dollar life insurance and why it is so important for businesses.

For a more in-depth explanation of split-dollar life insurance, read our post, What is Split Dollar Insurance?

Listen and Learn
Hear what Acumen’s very own Scott B. Hinkle has to share about split-dollar life insurance. Scott is the leader of the firm’s Credit Union practice and brings over twenty-five years of experience in the financial services arena.

Firstly, Scott mentions that, “-it’s very important for the institutional consumer to understand with a very high level of clarity what they’re getting themselves into when they do choose a partner as it relates to a split dollar transaction.”

The key points he goes on to discuss are:

  • The Importance of Understanding Split-Dollar Transactions
  • What to Consider When Choosing a Partner
  • Exit Strategies
  • Repayment of Outstanding Loan Balance
  • Control Over the Retirement Vehicle
  • Benefits of Policy Performance
  • Design Considerations for Executives
  • The Decision Making Process


Split-dollar is a type of life insurance arrangement in which the death benefit is split between the policyholder and the beneficiary. The policyholder pays the premiums, but the beneficiary receives the death benefit. This can be important for executives who want to have control over their retirement benefits. It is important to understand how the policy may perform before choosing this type of life insurance.

Important Questions
Scott wants clients to consider some important questions regarding their split-dollar policy. These include:

  • What is the exit strategy? 
  • Do we have to wait around until the executive dies? 
  • Can there be a mechanism by which repayment of that outstanding loan balance is addressed during the life of the executive? 
  • Who has control over the retirement vehicle? 

If you’re the executive, 

  • Do you know if you have 100% control over distributions from the policy? 
  • Or do you have to go back to your former employer and work with them to do something different, to take money out and at what speed?
  • What if the policy outperforms original projections?
    • Who benefits? Does the executive benefit? Does the organization benefit? 
    • Or does effectively nobody benefit because nobody can take it out or use it in a different fashion than originally contemplated?


Historically many of these policies have outperformed projections and Scott believes that, “-if the policy can afford a larger benefit payout, it should provide a larger benefit payout to that executive”.

Key Takeaways from Scott
It’s important for clients to understand what they’re getting themselves into when they choose a partner for a split-dollar transaction. Some of the questions that are important for clients are about the exit strategy, control over the retirement vehicle, and whether the policy is performing as expected. Most executives just want to be in control of their retirement plan and not have anyone telling them what to do. It’s important for consumers to understand what they’re getting into and some of the design considerations that could be implemented.

Today, especially for credit unions, it’s important to understand these types of executive compensation arrangements.

Split-dollar life insurance arrangements can be complex and difficult to understand. This is why we’re here—at Acumen Insurance Solutions—to explain this form of executive compensation further. Reach out to us today!

A post-it with the words "non profit" on it stuck to a calendar A wooden house, cash & a calculator on next to the post-it.
Amanda Rogers

How Can Your Nonprofit Keep Pace with Rising Costs?

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Charitable organizations are seeing their donations decrease in value due to inflation. In order to keep pace with rising costs, it is important for nonprofit organizations to diversify their assets. This will help protect them from the negative effects of inflation and ensure that they can continue to serve their communities effectively.

In this blog, we will explore how inflation has impacted nonprofits and ways to combat that.

Inflation Is a Problem
Inflation has become a problem for nonprofits because now:

  • They have to spend more money to maintain the same level of services
  • Their funding doesn’t keep pace with inflation
  • It’s harder to attract and retain donors
  • Their overhead costs go up while their funding remains stagnant

Therefore,

  • It can lead to cuts in programs or services
  • It can force nonprofits to make difficult choices about how to allocate their resources
  • It can put pressure on staff and volunteers
  • It can make it difficult to plan for the future

​​Inflation-Proof Your Portfolio
When choosing investments, nonprofit organizations should consider both stocks and bonds. They should also look into assets like life insurance, which can help protect against inflation. By diversifying their portfolios, nonprofit organizations can keep pace with rising costs.

How Insurance Can Help Inflation-Proof Your Portfolio
While stocks and bonds are important investments for nonprofit organizations, insurance can also play a role in protecting against inflation. Insurance is a safe and liquid option that can help to inflation-proof your portfolio.

When choosing an insurance policy, nonprofit organizations should consider both the death benefit and the cash value of the policy. The death benefit will provide protection in the event of the death of a key member of the organization, while the cash value grows at a competitive rate and can be used to cover expenses in times of need.

Nonprofit organizations should consider purchasing an insurance policy with a high death benefit and a cash value that grows over time with a positive correlation to rising interest rates.

Don’t Forget About Other Investments
While stocks and bonds are important investments for nonprofit organizations, it is also important to diversify your portfolio with other assets. These assets could include real estate, art, or even cryptocurrency.

Other Simple Steps to Offset Inflation
1. Understand what inflation is and how it can impact your nonprofit.

2. Look for ways to increase revenue without raising prices.

3. Consider alternative sources of funding.

4. Invest in assets that will appreciate over time.

5. Review your budget regularly and make adjustments as needed.

6. Be prepared to make changes in your operations if necessary.

7. Educate your staff and volunteers about inflation and how it can affect your nonprofit.

8. Keep a close eye on your expenses and look for ways to cut costs.

9. Advocate for policies that help nonprofits offset the impact of inflation.

10. Remain adaptable in the face of change.

Final Thoughts
Nonprofit organizations face many challenges, but by diversifying their portfolios they can keep pace with rising costs and continue to serve their communities effectively. By considering both stocks, bonds, and assets like insurance, nonprofit organizations can protect themselves from inflation and ensure the longevity of their charity.

Have any questions? Contact us to learn more about how you can help protect your nonprofit from rising costs.

Business Owner Looking Over Executive Compensation Packages
Amanda Rogers

How Non Profits Use COLI to Fund Executive Comp Packages

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Non profits are always looking for ways to do more with less. These organizations are accountable to their Boards of Directors, donors, and to government oversight post submission of their form 990.

All things considered, non profits are held to a higher standard and are expected to use their funds in the most efficient way possible.

One way that non profits can use their funds more efficiently is by using corporate-owned life insurance (COLI) to fund executive compensation packages.

Let’s listen below to David Jacobs, Principal at Acumen Insurance Solutions talk about this more.

What is Corporate-Owned Life Insurance?

Corporate-owned life insurance, also known as COLI, is a type of life insurance, owned by a corporation, where the death benefit can be used to help the corporation pay for expenses such as executive compensation packages, employee benefits, and other business costs.

The Benefits of Corporate-Owned Life Insurance

COLI is a safe and liquid investment that can offer many benefits to corporations. It can help them:

  • Keep pace with executive compensation packages
  • Attract and retain the best employees to fulfill their mission, and
  • Earn better yields to better meet the needs of their community beneficiaries

When used correctly, COLI can be a powerful tool for corporations. It can help them save money and provide many other benefits that can help the business succeed.

A Final Word

Using COLI to fund executive compensation packages is a smart way for non profits to use their funds more efficiently and effectively. It is a win-win situation for both the non profit and the executive, and it can help the non profit fulfill its mission in a more impactful way.

Interested in learning how your organization can use COLI? Read on to learn how non profit organizations achieve their key person acquisition and retention goals by using supplemental executive retirement plans funded with life insurance. Then, reach out to our Acumen team today for a free consultation.

employer and employee shaking hands
The Acumen Team

What is Split-Dollar Life Insurance?

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Employee benefits are a necessary recruitment and retention tool for credit unions to compete with other employers for top talent—and life insurance is often a key component of these benefit packages.

There are many life insurance products available to employers, but split-dollar life insurance plans have become increasingly popular in recent years. Since split-dollar life insurance plans first became popular in the 1980s, the usage of these arrangements has continued to grow.

Today, especially for credit unions, it’s important to understand these types of executive compensation arrangements.

While more popular today than in the past, split-dollar life insurance arrangements can be complex and difficult to understand. This is why we’re here—at Acumen Insurance Solutions—to explain this form of executive compensation further.

Let’s discuss split-dollar life insurance basics: what is it, and what are its benefits?

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What is Split-Dollar Life Insurance?

Simply put, a split-dollar life insurance arrangement is a form of executive compensation, involving an agreement between employer and employee, who ‘split’ the benefits and ownership rights of a life insurance policy.

The employer and employee may share:

  • The premium cost
  • Cash value, and
  • Death benefits of a permanent life insurance policy

Additionally, the employer and employee may determine the following:

  • How long the plan will remain in effect
  • Expectations on what each party hopes to accomplish, and
  • When or how the plan will be terminated

Types of Split-Dollar Insurance Plans

There are two types of split-dollar life insurance plans.

  1. CASCollateral assignment split-dollar (CASD), and
  2. Endorsement split-dollar

Benefits of Collateral Assignment Split-Dollar (CASD) Life Insurance Plans

Executive retirement plans are a great way to recruit and retain top talent. They can provide long-term benefits to credit union executives beyond salaries and bonuses, including additional life insurance and cash payout,.

Additional benefits of CASD plans include:

  • The sponsoring credit union booking income on the loan made to the executive
  • Potential tax-deferred/tax-free treatment of retirement benefits for the executive
  • Recovery by the credit union of the capital used to fund the plan
  • Avoidance of corporate excise tax

Lastly, another advantage of split-dollar life insurance is that it can be used to provide financial security for loved ones in the event of the policy holder’s death. This form of executive compensation can also be used as a way to transfer wealth between generations.

Disadvantages of Split-Dollar Life Insurance

There are some disadvantages to split-dollar life insurance. One is that the policyholder may have to pay taxes on the death benefit if the beneficiary is not a family member. Another is that the policyholder may have to keep up with premium payments even if the beneficiary stops making contributions.

No two policies are the same, so it’s important to speak with an insurance professional about your specific plan.

Acumen Insurance Solutions is Here to Help!

At the end of the day, split-dollar life insurance is a personal decision. There are pros and cons to consider, but it can be a useful tool for financial planning.

Interested in learning more about how your organization might implement a split-dollar compensation plan? Reach out to our team at Acumen Insurance Solutions today. Then, read on to learn how to retain top talent using executive compensation.

Team of creative businesspeople having a presentation in a boardroom. Group of modern businesspeople attending a financial briefing in a modern workplace. Businesspeople analysing statistical details.
Amanda Rogers

How Credit Unions Can Improve 457(f) Plans for Executives

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Competition for key talent has never been more prevalent than it is today

Providing a supplemental executive retirement plan (SERP) to key executives significantly enhances an organization’s ability to attract, reward, and retain its most important people.

One of the most popular SERP designs used by credit unions is a 457(f) plan. Before your organization considers installing a traditional 457(f) or if it already has one in place, please consider the following:

What is a 457(f) Plan?

457(f) plans are tax-advantaged retirement savings plans available to certain executives of tax-exempt organizations, including credit unions.

457(f) plans allow executive participants to contribute a portion of their compensation on a pretax basis, up to the annual IRS limit and receive matching or other employer contributions. Employers may also make discretionary contributions to 457(f) plans on behalf of their executive participants.

These plans can be funded with amounts necessary to provide a defined benefit to the executive upon retirement or with periodic contributions over time in agreed-upon amounts.

Upon retirement, the executive is responsible for paying all of the taxes, in a lump sum, at ordinary income rates. In some states, that can mean that more than half of an executive’s retirement benefit will end up going to the government.

The Benefits of 457(f) Plans

457(f) plans offer a number of benefits to credit unions and their executive participants, including:

  • The ability to attract and retain top talent,
  • Tax-deferred growth of investments, and
  • Flexible withdrawal options

Traditional 457(f) Plan Designs

Traditional 457(f) plans can be effective executive retention tools but they have significant drawbacks, including:

  • Offering the organization inferior rates of return on dollars invested
  • Requiring the retiring executive to reinvest remaining post-tax assets in a taxable environment
  • Lack of a death benefit for the executive’s heirs at his/her demise; rather, they receive only what has accumulated in the plan up to that date

Moreover, credit unions should be aware of the potential pitfalls associated with 457(f) plans, such as compliance with IRS rules and regulations, high administrative costs, and the risk of participant litigation.

How Credit Unions Can Improve 457(f) Plans

Credit unions can take steps to improve their 457(f) plans in order to maximize the benefits for both the organization and its executive participants. These steps include:

  • Selecting the right 457(f) plan provider
  • Designing a 457(f) plan that is compliant with IRS rules and regulations, and
  • Implementing 457(f) plan administration and participant communication best practices

By taking these steps, credit unions can ensure that their 457(f) plans are well-designed and well-managed, providing maximum benefits for all involved.

Acumen Insurance Solutions 457(f) Plan Designs

Acumen’s plan designs provide a death benefit or self-completing feature equal to the full value of the executive’s projected retirement benefit. In addition, these designs:

  • Offer a more tax-efficient solution for the executive to receive retirement benefits resulting in 30-40% more, after-tax income
  • Include an investment vehicle for the retiring executive that has historically provided both a competitive return and a principal guarantee
  • Can be implemented with no additional cost or burden on the organization

If your organization is thinking about installing a 457(f) plan, let’s talk! We can help you decide if our customized plan designs are worthwhile, considering your situation.

Moreover, if you already have a 457(f) plan in place, we’re happy to review your current plan and see where you may be able to improve them. Reach out to us!

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Amanda Rogers

Using Life Insurance as an Investment Tool

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Life insurance is more than what meets the eye. Forbes writes that life insurance is primarily purchased for risk management. How so? Life insurance helps families manage the risk of financial survival after the loss of a breadwinner. 

The death benefit from a life insurance policy can be used by the beneficiaries in many different ways, including to help:

  • Fund day-to-day living expenses, such as food, gas, and medicines
  • Pay off debts, like mortgages, credit cards, and car loans
  • Provide income to surviving relatives for health care or education needs, or
  • Pay federal and state estate taxes

While life insurance is great at managing the economic risk of death and can provide a rate of return on premiums paid over the years in exchange for a  death benefit, it also can be an effective investment tool for the policy owner while the insured is still alive.

Let’s discuss this further.

Life Insurance as an Investment Tool

As you look to diversify your investment portfolio, life insurance can be a dependable, lower-risk option to funnel money into because of its growth potential and tax benefits. 

There are two types of life insurance categories: term life insurance and permanent life insurance. Here, we are focusing only on permanent life insurance because it includes a cash value account in addition to a death benefit. The cash value component is used by the policy owner to protect, grow, and access wealth on a tax-favored basis while the insured is still alive. 

Let’s discuss how permanent life insurance can act as an investment tool.

Permanent Life Insurance

Permanent life insurance is designed to last your lifetime and is composed of three components:

  • Premiums
  • Cash value, and
  • A death benefit

The cash value is a tax-advantaged savings account. It serves as a living benefit that the policy owner can access for any reason before the insured has died.

When you make a premium payment, what happens? A portion goes to pay for the cost to insure a life for the death benefit amount, as well as for policy fees, state premium taxes, and commissions.

The remainder of their premium goes into your cash value account, which can grow and be accessed without paying tax, for you to use for any purpose at a later time.

There are a few different types of permanent life insurance contracts to note—and the main differences between the types of permanent policies have to do with what mechanism grows that cash value account.

Types of Permanent Life Insurance

  • Whole Life Insurance
  • Universal Life Insurance
  • Index Life Insurance
  • Variable Universal Life Insurance

Visit our article “Permanent Life Insurance: What Options Are Available to You?” for more details on each permanent policy.

Life Insurance as an Investment: Cash Value Life Insurance

All four aforementioned permanent life insurance policies include a cash value component which, when structured properly, can serve as a tax-favored investment vehicle that the policyholder can use while the insured is still alive. 

With all life insurance policies, a permanent policy still includes a large tax-free death benefit paid to the beneficiaries when the insured passes away. 

But the cash value component can have tremendous value as well. It’s available to the policyholder while the insured is alive, and grows tax-deferred.

The cash value can be used to offset future premiums and/or accessed tax-free, for any reason, using either policy loans or a withdrawal of principal. This component adds flexibility and provides a tax-favored source of income for retirement, travel, healthcare needs, or emergencies.

A Final Word

Life insurance, when structured properly, can be a low-risk option to stabilize and grow an investment portfolio on a tax-advantaged basis. In order to ensure your life insurance policy is acting as an investment tool, however, you need proper guidance and insight into selecting the right policy.

This is where our team at Acumen Insurance Solutions comes in.

Contact us today to learn more, then read on to find out what permanent life insurance options are available to you.