Basic types of life insurance products available in the marketplace can be combined and modified in many different ways, which can result in a complex final product. Furthermore, certain permanent insurance products have been designed primarily for credit unions and banks. These products differ from other forms of COLI policies. For example, policies designed for credit unions may be structured without surrender or front-end sales charges in order to avoid having to report these charges as expenses when initially recording the carrying value. However, these credit union and bank insurance products may have lower net yields than COLI products due to the absence of these charges.
A credit union should review the characteristics of the various insurance products available, understand the products it is considering purchasing, and select those that have characteristics that best match the credit union’s objectives, needs, and risk tolerance. For a FCU, any insurance product selected must have a direct relationship to the employee benefit it funds. If a credit union purchases retail instead of institutional insurance products, it should be able to justify the decision to purchase a product that is typically higher priced and offers fewer options for the purchaser.
Design features of permanent insurance policies determine: 1) whether the policy is a general account or separate account, or 2) the method used to credit earnings to the policy.
Last updated September 25, 2017
