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:
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.