Pub. 2 2011 Issue 1

spring 2011 9 Like the strength of the Appalachian Mountains... West Virginia Community Banks deserve a strong Correspondent Bank working for them. The Bankers’ Bank has a solid tradition of personal service matched with superior products. “I look forward to earning your business and becoming your Correspondent Banker.” – Scott Jones, Vice President The Bankers’ Bank of Kentucky Your Correspondent Bank 800.248.3229 | 502.695.3000 | www.bbky.com Scott Jones - Vice President Cell: 502.609.2559 5504_W.VirginiaAd_final.indd 1 11/2/09 1:02:40 PM BOLI products have a minimum guaranteed crediting rate. These same products also have guaranteed charges and expenses. It is important to review the illustration at the guarantees because it may indicate the policy has the poten- tial of actually losing cash value and lapsing at its guarantees. Most universal life products run the risk of losing cash value and lapsing at the guarantees. Whole life products generally do not. 5. Review the illustration for cash values and death benefits out to age 100. BOLI is frequently sold from a rate sheet showing returns on the BOLI for the first year or the first five years or so. Carriers know this and the temptation is to make their product more marketable by illustrating “teaser” returns in the early years. This can be accomplished either by provid- ing a higher initial gross crediting rate or by back end loading the mortality and expense charges. The sales illustration should indicate what the crediting rates are in the product. If the sales illustration shows a higher ini- tial gross crediting rate than its ultimate gross crediting rate then the carrier is enhancing the product’s early return. It can, however, be more difficult to determine whether the carrier is back end loading the insurance costs. Short of hiring an actuary, the bank may be able to determine whether this is being done by simply comparing the cash value returns in the early years to the returns in the later years. Returns should decline as the insured gets older but a precipitous decline especially after the first several years might indicate costs are back end loaded. Again, this review is best done in comparison with other carriers’ products. 6. Request illustrations showing what the bank’s return would be today had the BOLI been purchased from the same carrier several years earlier. If the bank is looking at a BOLI product for a new purchase or for replacement of an existing product, it should ask what the net crediting rate would be today had it bought that product several years earlier. If the new rate is superior to what is being credited on the carrier’s earlier block of BOLI, it could be attributable to policy en- hancements or the carrier could be subsidizing new sales off of its old policy owners? Once the bank purchases the BOLI it is an old policy owner so knowing how it will be treated going forward is important. 7. Ask how the bank is protected if the carrier withdraws from the BOLI market? A number of BOLI carriers have Q Nine Steps — continued on page 10