News You Need to Know: Best Practices
Lorman: “New Hurdles for Employers Who Obtain New Corporate Owned Life Insurance,” 2006-10-30
The Pension Protection Act of 2006 includes new rules applicable to employers who obtain life insurance policies, also known as corporate owned life insurance (COLI) on the lives of one or more of its employees. Under the new rules, the following requirements must be satisfied if the employer desires to exclude the policy proceeds from its income upon the death of the employee.
Advisors need to be aware of these rules. Failure to satisfy the requirements will result in the policy proceeds being included in the employer’s income (except to the extent of the premiums paid by the employer). These new rules apply broadly to most corporate owned life insurance policies, including policies that are owned by and payable to the employer to fund deferred compensation payments or to fund equity redemptions at the death of the insured. The rules also apply to policies that are owned by an employer where the death benefit is payable to a designated beneficiary (although it is not clear how the rules would apply in that situation).
Comptroller of the Currency, Administrator of National Banks, “Insurance Activities: Comptroller’s Handbook” 2002-06-01
This “Insurance Activities” handbook booklet provides information for bankers and national bank examiners on the risks, controls and supervision of national banks’ insurance activities by the OCC. This booklet provides examiners guidance on performing appropriate assessments of risks to national banks from insurance activities, including a process that may be used in planning and conducting risk assessments. Because of the complexity and importance of the legal requirements associated with insurance activities, this handbook also contains considerable legal guidance.
National banks have conducted insurance sales activities since the early 1900s. The types of insurance products and services offered and the associated distribution systems are changing significantly as this business line evolves. In recent years, national banks have engaged in insurance activities as a means to increase profitability mainly through expanding and diversifying fee-based income. Banks are also interested in providing broader financial services to customers by expanding their insurance product offerings.