The State of Credit Union-Owned Life Insurance: How Falling Interest Rates and Market Volatility Are Impacting Credit Union-Owned Life Insurance Carriers and Policies

The State of Credit Union-Owned Life Insurance: How Falling Interest Rates and Market Volatility Are Impacting Credit Union-Owned Life Insurance Carriers and Policies

The past few months of COVID-19 related events have had an impact on Credit Union-Owned Life Insurance (CUOLI). While a CUOLI policy helps mitigate some of the risk in the open market, the decline in interest rates, unstable stock market conditions and the decline in loan demand highlight that this is the perfect time to review and reassess CUOLI policies.

Four current effects on Credit Union-Owned Life Insurance include:

A decline in current crediting rates.
Universal life policies are interest rate sensitive. The life insurance carriers are experiencing lower yields on their fixed income assets. As a result, some have, or are considering, reducing their crediting rates on cash value accounts.

Potential increase in mortality charge schedule.
Carriers have been reluctant to increase this charge to policy owners. However, due to persistently low interest rates, some carriers are considering this option, especially if they have already reduced their current crediting rate to the guaranteed minimum for a long period of time.

New CUOLI policies.
Carriers have started reducing the maximum premiums they will accept over concerns of where there they will be able to place new money to achieve the necessary yields to meet its contractual promises under the policy.

Lower long-term AFR.
Split-dollar life insurance SERP arrangements for key executives can be refinanced at lower rates. Credit unions should also consider a loan that is repaid at the executive’s retirement rather than at death so the organization can become liquid more quickly and allow the executive to part ways with the credit union more rapidly.

Observations from Scott Hinkle, JD, CFP, Credit Union Practice Leader, Grant Hinkle & Jacobs.
In this unusual environment, it is especially important to review existing CUOLI policies to ensure they are still maximizing your organization’s investment.

Opportunities to improve current CUOLI positions include:

  • Diversifying CUOLI assets among various carriers and policy types;
  • Obtaining higher current interest rates and more stable mortality charge guarantees; and,
  • Reducing or eliminating investment risk.

If an organization is considering COULI, there is opportunity to acquire a better-performing, higher-yielding products with stronger guarantees.

If marketable securities are used as an impermissible investment to fund benefit plans, CUOLI polices will reduce risk and increase predictability in a volatile market while still earning a competitive rate of return.

Call to action.
The team at Grant, Hinkle and Jacobs has established an innovative, proprietary forms of COULI that help their credit union clients maximize the benefits of their policies while minimizing the expenses associated with the acquiring the coverage. In fact, over a 20-year period, our CUOLI policies yield approximately 95% more cash value that a typical CUOLI contract sitting on a credit union’s balance sheet today.

For more information about Grant, Hinkle & Jacobs and our Credit Union-Owned Life Insurance programs, watch our webinar on this topic.