OLYMPIA, Wash. (5/1/13)--The Washington State Department of Financial Institutions (DFI) Division of Credit Unions, in an interpretive statement, outlined the permissibility and standards for state-chartered credit unions' purchase of "key-person" life insurance products.
The April 24 statement by Division of Credit Unions Director Linda Jekel addressed two types of insurance: key-person insurance, known as bank-owned life insurance (BOLI) , which benefits the credit union, and employee benefit plans that include life insurance products that benefit the employee.
BOLI key-person insurance is commonly used by financial institutions to protect against the loss of a key person whose services are essential to the institution's continuing success and whose untimely death would be disruptive.
Federal credit unions also have the ability to make otherwise impermissible investments to fund employee benefit obligations, said the statement.
Jekel said the DFI has said that purchasing and holding of the two types of life insurance is permissible and facilitates the delivery of financial services to the credit union's members.
They may purchase and hold life insurance products so long as the credit union follows the standards set forth in the interpretative statement, including provisions from the National Credit Union Administration regarding the Employee Benefits Rule and an Interagency Statement of the Purchase and Risk Management of Life Insurance from four federal agencies--the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors, the Federal Deposit Insurance Corp. and the former Office of Thrift Supervision.
The Northwest Credit Union Association also alerted its member credit unions to the interpretive statement in its Anthem newsletter Tuesday.