Pub. 2 2011 Issue 1

www.wvbankers.org 10 Melissa K. Oliverio and Michael A. Oliverio, II are Financial Representatives with The Northwestern Mutual Life Insurance Company and are members of the MMB Consulting LLC, Service Team. either withdrawn from the market or have suspended BOLI sales. The question is whether the carrier will continue to support its BOLI product if it is no longer active in the market. Most BOLI products today have restrictions and penalties that make it difficult to exchange out of a BOLI product. Getting it right from the start is very important. The opportunities to change carriers in the future can be severely limited. 8. Does the BOLI have breakpoints? Most BOLI products have commission breakpoints. Typically, these breakpoints occur at premium purchases of $5 and $10 million. The lower commissions paid at these breakpoints can result in a direct improvement in the net crediting rate on the BOLI. If the bank is close to obtaining a breakpoint, it should look to structure its purchase to obtain that breakpoint. Diversifica- tion is important but be mindful of breakpoints too. 9. What are the bank’s options if the carrier has problems? One common misconception bankers may have about BOLI is that if the carrier has a problem the bank can always exchange out of the product tax-free under Section 1035 of the Internal Revenue Code. This may not always be the case. First, the bank must have an insurable interest in the per- son insured by the policy. If the insured person is no longer employed at the bank, then the bank no longer has an insur- able interest and an exchange may not be made. Secondly, if the policy is medically underwritten and the insured has experienced health problems, an exchange may no longer be possible. Finally, there could be exchange charges and restric- tions, which would make it expensive or time consuming to make the exchange. A second option is simply to surrender the policy. A surren- der, however, would trigger income tax on the investment gain in the policy plus a 10% tax (MEC) penalty on that gain. The bottom line is the bank should be aware of its limited ability to exchange out of a carrier’s BOLI product. Getting it right from the start is, therefore, extremely important. In conclusion, BOLI can be an excellent way for a bank to ad- dress rising benefit costs. It can also be used very effectively to cover the cost of a plan designed to attract, retain, and reward the bank’s key talent. That being the case, the bank’s BOLI should be as strong as possible and hopefully this Nine Step Die Diligence Process should help reach that goal. Q Q Nine Steps — continued from page 9 REACH YOURTARGET AUDIENCE AFFORDABLY Find out how targeted advertising can produce real, measurable results for your organization. Kris Montione, Advertising Sales 801.746.4003 | kris@spectruminkpublishing.com ADVERTISE AND GET RESULTS