The DFI Issued Guidance on State Credit Union Owned Life Insurance

The Washington State Department of Financial Institutions Division of Credit Unions (DFI) recently issued an interpretive statement regarding state credit union owned life insurance. The purpose of the interpretive statement is to outline the permissibility and standards for the purchase of life insurance products by a credit union.

The two types of insurance covered in the statement are ‘key-person insurance’ commonly known as bank-owned life insurance (BOLI) and employee benefit plans which include life insurance products.

BOLI as “key-person insurance” is commonly used by financial institutions to protect against the loss of “key persons” whose services are essential to the continuing success of the institution and whose untimely death would be disruptive.

In addition, federal credit unions have the power to make otherwise impermissible investments to fund employee benefit obligations.

The DFI has opined that the purchasing and holding of life insurance products (1) key-person insurance for its own benefit, and (2) for the benefit of its own employees in relation to an employee benefits plan by a credit union facilitates the delivery of financial services to the members of that credit union.

Credit unions may purchase and hold life insurance products, so long as the credit union follows the standards set forth in the interpretive statement, including the provisions set forth by the NCUA regarding the Employee Benefits Rule, and the Interagency Statement on the Purchase and Risk Management of Life Insurance.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Around the NW, Community Impact, Compliance.