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Can I Change My Life Insurance?

Secret’s out—life insurance is not a one-and-done deal. Contrary to popular belief, you can change your life insurance policy and your coverage amount throughout your life as your situation inevitably changes.

But why would you want to change your life insurance in the first place? What elements can you change? 

Let’s discuss.

Why Would I Change My Life Insurance?

There are many reasons why one might decide to change their life insurance coverage. Some policyholders might modify their life insurance to:

  • Reduce their premiums to an affordable amount
  • Find a policy with features better suited to meet their current needs
  • Update the amount of coverage

Additionally, there are various life events that might trigger changing one’s life insurance policy. These changes include, but are not limited to:

Changes in Career

This might include a career change, business ownership change, or the decision to launch a new company. 

Changes in Family Circumstances

Marriage, divorce, the arrival of new children or grandchildren, a family member’s death, and the need to care for one’s aging parents, are all reasons why one’s life insurance policy might need to be revisited.

Changes in Health

A policyholder might want to change their life insurance if the insured experiences a significant change in health, either positive or negative, or has a greater need for other features like living benefits.

Policy or Industry Changes

There can also be policy or industry changes that might prompt one to change their life insurance, such as updated mortality tables, and new product features and benefits. In addition, changes to tax laws – especially inheritance taxes – can increase or decrease the need for life insurance.

Infographic for "Can I Change My Life Insurance?"

What Can I Change About My Life Insurance?

So, we’ve addressed the fact that life insurance can be changed — but what about it can be changed?

As the policyholder, you are in control of the choices you make regarding your life insurance policy, whether it’s your life or someone else’s that is insured. This might include:

  • Buying additional life insurance coverage
  • Amending your life insurance policy with your current carrier
  • Canceling or selling your insurance policy and finding a policy better suited to your current needs
  • Withdrawing money from your plan

There are many reasons to both change, and not change, your existing policies. Some of these reasons include:

Reasons to Keep My Life Insurance

  • Competitive rates of return on dollars invested
  • Tax-favored characteristics and benefits 
  • Preservation of favorable health status
  • Changes in tax laws
  • Wait out surrender charge periods
  • Explore life settlement options

Reasons to Change My Life Insurance

  • Rising premiums
  • Outdated features and benefits
  • Unfavorable contract guarantees
  • Policy type is no longer aligned with current risk or need profile
  • Carrier quality concerns
  • Lack of underwriting upgrade programs

The bottom line? Life changes, and as it seems, life insurance policies are actually created with this fact in mind. The life insurance plan you structured 10 years ago isn’t irrevocable.

The Importance of Auditing Your Life Insurance Policy

Life insurance policy audits should be a part of your routine checklist. This includes taking a look at your existing policy’s premiums, death benefit, and guarantees as well as its current cash and surrender value.

But why do you need to audit existing plans? Improving an existing life insurance policy can mean:

  • Reducing risk;
  • Improving yields on premium dollars invested; and, 
  • Achieving peace of mind knowing that your affairs are in order. 

Part of our job at Acumen Insurance Solutions is to routinely audit our clients’ life insurance policies to ensure coverage continues to meet client needs. Get in touch today and read on to learn more about the importance of auditing your existing life insurance plan.

*Disclaimer: Life insurance policies are based on the claims-paying ability of the underlying insurance carrier and are not FDIC-insured. Pricing can be based on many factors, including the insured’s age, gender, health, and state of issue. Please refer to a current policy illustration for details.

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Why Should a Credit Union Invest in Credit Union-Owned Life Insurance?

There are many advantages to implementing a credit union-owned life insurance (COLI/CUOLI) program. Here, Scott B. Hinkle, J.D., CFP, and Principal at Acumen Insurance Solutions, talks about why a credit union should invest in credit union-owned life insurance. 

Let’s get started.

What is Credit Union-Owned Life Insurance?

Credit union-owned life insurance (COLI/CUOLI) is an “otherwise impermissible investment” that credit unions often use to pre-fund employee benefit expenses under Section 20. Policies insure the lives of individual executives or groups of key people and are designed to generate competitive current yields on cash values. 

invest in credit union owned life insurance

Why Should Your Credit Union Invest in Credit Union-Owned Life Insurance?

So, why should your credit union consider investing in credit union-owned life insurance (COLI/CUOLI) as opposed to the other options that are available?

  1. It’s Safe: Credit union-owned life insurance policies are issued by life insurance carriers that have been around 100 to 150 years.
  2. It’s Liquid: In the event that you choose to redeploy your capital elsewhere, you have the ability to do so with a credit union-owned life insurance policy.
  3. It Provides Meaningful Rates of Return: These policies are currently earning very meaningful rates of return. In fact, they are currently yielding between 2.5% and 5.0%, depending upon the class of policy selected.*

For all of these reasons, credit union-owned life insurance should be something that all credit unions consider in today’s challenging investment and interest rate environment.

Interested in learning more about why you need to periodically review your existing COLI plans? Read on in “Auditing Existing COLI Plans for Credit Unions.”

*Disclaimer: 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.

Employee working on a tablet and reviewing data

Auditing Existing COLI Plans for Credit Unions

At Acumen Insurance Solutions, we like to say that we “put life insurance to work.” One way that we do this is by auditing existing COLI plans for credit unions. Here, Scott B. Hinkle, J.D., CFP, and Principal at Acumen Insurance Solutions, talks about:

  • The benefits and popularity of COLI within credit unions
  • The importance of reviewing these policies regularly

Let’s dive in.

Credit Unions Using COLI

Many credit unions currently use credit union-owned life insurance as a mechanism to offset benefit expenses under Section 20. This asset class is a tried and true way in which credit unions can achieve several objectives.

These assets are safe, liquid, and they’re producing a meaningful rate of return. However, many credit unions do not review these contracts regularly, meaning that they are likely leaving money on the table. This is where we come in at Acumen.

Infographic for "Auditing Existing COLI Plans for Credit Unions"

Improving Credit Union-Owned Life Insurance (COLI) Performance

So, why do you need to audit existing COLI plans? Improving an existing COLI portfolio can mean:

  • Reducing risk, and
  • Significantly improving earnings over time

It’s important to recognize that over the years, life insurance contracts have evolved, become more efficient, and offer different features and benefits.

In fact, innovation, automation, negotiation, and increased life expectancies have improved the competitiveness of many life insurance contracts. Today’s policies are vastly different even compared to those purchased by credit unions just a few years ago.

This considered, it makes sense for every institution to periodically take a look at their existing credit union-owned life insurance contracts.

How We Help at Acumen

At Acumen Insurance Solutions, we help credit unions analyze and update their existing COLI portfolios to maximize efficiencies and yields.

As your credit union grows in size, so does the opportunity for you to invest in new credit union-owned life insurance. We can help you curate new life insurance contracts that are far more efficient than others available in the marketplace today.

Read on to learn more about why CUOLI is the best “otherwise impermissible investment” for your credit union.

Mark-to-Market Accounting and COLI

For credit unions that are investing in traditional securities under Section 20 of their Call Report — as an otherwise impermissible investment to offset benefit expenses — recent standards require mark-to-market accounting treatment.

Here, Scott B. Hinkle, J.D., CFP, and Principal at Acumen Insurance Solutions, talks about mark-to-market accounting.

Let’s get started.

What is Mark-to-Market Accounting?

Mark-to-market accounting is defined as “an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions. The market value is determined based on what a company would get for the asset if it was sold at that point in time.”

Why Is This a Problem?

This can be problematic for credit unions as the volatility of underlying asset classes, even if intended to be held long-term, ultimately has an effect on current net income. These institutions might want to consider credit union-owned life insurance as an alternative.

Why Should a Credit Union Invest in Credit Union-Owned Life Insurance?

So, why should a credit union consider investing in credit union-owned life insurance (COLI/CUOLI) as opposed to the other otherwise impermissible investment options that are available under Section 20?

  1. It’s Safe: Credit union-owned life insurance policies are issued by insurance carriers that have been around 100 to 150 years.
  2. It’s 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.
  3. It Provides Meaningful Rates of Return: These policies are currently earning very meaningful rates of return. In fact, they sit somewhere between 2½% and 5.0%, depending upon the class of policy selected, with guarantees against loss and without direct market exposure.*

Lastly, and most relevant to this article, since credit union-owned life insurance is so safe, it virtually eliminates any concern about a negative impact on the current net income statement, as compared to traditional securities.  

If you haven’t given credit union-owned life insurance a look in the recent past, now might be a good time to do so. Read on to learn more about the benefits of credit union-owned life insurance.

*Disclaimer: These policies are not considered securities. Guarantees are based on the claims-paying ability of the 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.

Leaves gradually growing out of coins

Why CUOLI is the Best “Otherwise Impermissible Investment” for Your Credit Union

There are three primary impermissible investments in the credit union space today: life insurance, securities, and annuities.

Credit union-owned life insurance (COLI/CUOLI), on the other hand, is considered an “otherwise impermissible investment” for your credit union.

This investment strategy is attractive for credit unions for many reasons. Credit union-owned life insurance is a capital asset that is both secure and liquid compared to traditional credit union investments. This investment also allows for greater portfolio diversification and gives credit unions access to investments that are typically impermissible.

By strategically using CUOLI, credit unions can solve major issues ranging from narrowing margins to employee retention.

Here’s more on why CUOLI is the best “otherwise impermissible investment” for your credit union.

Investment Options for Credit Unions

According to the National Credit Union Administration (NCUA), corporations “have the authority to purchase investments otherwise impermissible if those investments meet the direct relationship requirement and are intended to fund an employee benefit obligation.”

Generally, the types of assets that financial institutions consider otherwise impermissible investments include:

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

Under the branch of life insurance, there is credit union-owned life insurance (COLI/CUOLI), which is arguably the best otherwise impermissible investment for your credit union.

What is Credit Union-Owned Life Insurance?

In general, 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.

Credit union-owned life insurance, in particular, is a life insurance strategy with various benefits. Credit unions can use COLI to balance the cost of employee benefit programs and potentially enjoy higher yields than the typical CU investments.

Similar policies have been used by commercial banks, called bank-owned life insurance (BOLI), for over 35 years.

Types of CUOLI

Life insurance is available in several different offerings, so understanding the options and selecting the right type of policy for your goals and budget is crucial.

Whole Life

Whole life provides lifelong coverage and includes a cash value component. The initial premium is designed so that the policy lasts as long as the insured lives, the death benefit is guaranteed, and the cash value account grows based on a dividend rate. 

Universal Life (UL)

Universal life insurance has a cash value account that grows at a guaranteed crediting rate as well as a current crediting rate, which is typically higher. Cash value projections are based on the current crediting rate, so if the rate goes up, the cash value would grow faster, and vice versa.

Index Universal Life (IUL)

With index universal life insurance, the cash value growth is tied to the performance of a market index, like the S&P 500. Unlike investing directly in an index fund, however, the policy won’t lose money when the market has a downturn. This is because a guarantee or “floor” applies to the rate, insuring it against losses, due to market declines.

One of its most attractive features is its ability to take advantage of stock market-like returns without the similar risk of loss while building up a death benefit.

Variable Universal Life (VUL)

Variable universal life insurance uses separately managed accounts, referred to as sub-accounts, to increase cash value. Subaccounts are structured like mutual funds with various stock and bond options. Cash value assets are held by the sub-account investment managers, rather than by the insurance company.

By separating the savings component from the death benefit component, the life insurer transfers all of the investment risks of the policy.

CUOLI/COLI Design Considerations

When it comes to the design of COLI plans, here are some factors and questions to consider that can affect plan performance:

  • The Pool of Insureds: How old are the insureds? What is their health like? How many are there?
  • Underwriting Alternatives: Are you dealing with a guaranteed issue group, individual medical underwriting, simplified underwriting (no physical), or some combination of the above?
  • Product Allocation Options: 15% of net worth carrier limitation 
  • Contemplated SERP Obligations

A Final Word

CUs can invest up to 25% of net worth in CUOLI policies and up to 15% of net worth with any one insurance carrier under the NCUA’s section 20. Credit union-owned life insurance can provide safety and liquidity with higher yields for your CU. Help your organization earn a higher current yield while acquiring life insurance protection for your key people.

Additional elements to consider:

  • Your credit union will enjoy an annual net yield typically ranging from 250 to 500 basis points higher than similar risk-adjusted assets it currently owns
  • As interest rates rise, so will the yields on CUOLI
  • Death benefits can be paid to your credit union and/or the insured’s heirs
  • Up to 25% of a credit union’s member equity can be utilized
  • Ideal for compliance with FASB ASU 2016-01.

With so many different policy options and carriers to choose from, it can be challenging to navigate the life insurance marketplace alone. Working with an independent life insurance professional like our team at Acumen Insurance Solutions is critical, and knowing the basics will help ensure you make the most informed decision.

Read on to learn more about how CUOLI helps your credit union earn safely.

Stack of one hundred dollar bills

CUOLI: How to Earn More Safely

Credit unions typically keep significant liquid, short-term assets on their balance sheets, but the yield on these assets is minimal in today’s low interest rate environment and fails to provide a meaningful impact on current income.

Credit union-owned life insurance (COLI/CUOLI) is an important strategy that can help your credit union earn high yields safely. 

Let’s discuss.

What is Credit Union-Owned Life Insurance?

Firstly, what is credit union-owned life insurance?

COLI or CUOLI is a single premium life insurance contract where the credit union is both the owner and beneficiary of the policy.

Credit unions use this life insurance strategy to offset the cost of employee benefits and executive compensation plans, as well as generate higher current yields compared to other options while preserving safety and liquidity.  

COLI policies insure the lives of your executives and/or key employees. Similar policies, called bank-owned life insurance (BOLI), have been used by commercial banks for over 40 years.

Why Do CUs Purchase COLI/CUOLI?

Credit unions are in search of higher yields without taking unnecessary risk — and have been for decades.

Historically low interest rates have put pressure on credit unions to find yield. However, excess funds and liquidity make finding yield difficult for credit unions. While life insurance has always been a popular asset for banks to have on their balance sheets, credit unions have also been drawn to this asset for CUOLI’s safety, stability, and yield.

So, what’s the solution? Credit union-owned life insurance.

As an asset class, CUOLI can help mitigate interest rate and price risk, providing a less volatile return to the credit union. Additionally, credit unions are finding that returns on CUOLI are higher than other, more traditional options.

Let’s illustrate what this looks like in action.

COLI/CUOLI in Action

Situation: A $4 billion credit union wants to earn more on its cash and short-term investments, and protect itself from the unexpected passing of its key executives.

Action Steps: After considering several options, the board decides to fund institutionally-designed credit union-owned life insurance (CUOLI/COLI) policies, issued by top-quality carriers.

Designed and placed by Acumen Insurance Solutions, the policies hold high cash values while insuring the lives of the credit union’s executives. The program this credit union selected uses two different types of life insurance policies – one with a fixed rate and the other with a floating rate. Both have principal guarantees.

The Results: As a result of implementing a COLI policy, the credit union is now receiving:

  • A 4% annual net rate of return from the fixed policy and a 5% (average) return from the floating rate policy, while preserving safety or liquidity
  • Yields that increase as interest rates rise
  • Additional key-person death benefit protection on the CEO, CFO, and CCO that will be paid to the organization
  • The ability to contribute more in the future to these policies, if desired
  • Compliance with FASB ASU 2016-01

A Final Word

At Acumen Insurance Solutions, we have pioneered “institutional” designs that maximize performance while minimizing the out-of-pocket expenses associated with the acquisition of “retail” life insurance.

We recognize that credit union-owned life insurance is a great way to earn a higher current yield without sacrificing safety or liquidity while acquiring life insurance protection on key people.

Read on for more benefits of credit union-owned life insurance.

Close up of two people shaking hands

What are the Benefits of Credit Union-Owned Life Insurance?

In today’s interest rate environment and in the face of rising employee benefit expenses, the yield on a credit union’s safest and most liquid assets is extremely low and typically generates little income. Additionally, in order for a credit union to potentially increase the yield on its assets, liquidity and/or safety typically must be compromised.

Using credit union-owned life insurance (also known as “COLI” or “CUOLI”) as a way to pre-fund the increasing cost of benefit expenses, however, can provide significant advantages to your credit union.

Let’s discuss the benefits of COLI.

What is Credit Union-Owned Life Insurance?

COLI is an investment in life insurance that credit unions use to pre-fund employee benefit expenses. Similar policies have been used by commercial banks, called bank-owned life insurance (BOLI), for over 35 years. In addition: 

COLI can produce higher current yields for credit unions than the other options while preserving safety and liquidity.

COLI policies insure the life/lives of executives, where the credit union is the owner and the beneficiary of the policy.

How Can COLI Benefit Your Credit Union?

There are many advantages to implementing COLI. Here are a few:

Increase Yields

Earn a higher current yield (often 50% to 200% higher) compared to other conservative safe/liquid assets without sacrificing safety or liquidity, and acquire life insurance protection on key people. As interest rates rise, so do the yields on these policies. If your credit union already owns COLI, you may be able to improve performance through a policy audit and upgrade to the most efficient contracts.

Informally Pre-Fund Employee Benefit Expenses

Employee benefits are used by credit unions as a way to attract, reward, and retain your employees. The increased yields achieved through COLI can be used to offset the costs of employee benefit plans. 

Comply with FASB ASU 2016-01

COLI is ideally suited to eliminate some of the accounting issues that are the result of recent changes to the Financial Accounting Standards Board (FASB) because COLI minimizes volatility and is backed by some of the world’s strongest insurance companies.

With these strong advantages, COLI is becoming an even more popular solution for credit unions as a means to offset the costs for employee benefits (i.e. healthcare and other group benefits).

A Final Word

If your credit union would like to earn a higher yield on its safest, most liquid assets, own life insurance on its key people, and pre-fund employee benefit expenses, COLI is an attractive alternative to the lower-yielding options offered elsewhere.

At Acumen Insurance Solutions, we specialize in custom-designed life insurance products to fund supplemental executive retirement, business perpetuation, and estate plans, working closely with our clients to uncover their unique needs. If you already have a COLI policy in place, our team can audit your existing plan and ensure you are using the plan to its greatest potential. 

Interested in learning more? Read on for more information on how life insurance protects your key executives.