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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.