Pub. 2 2021 Issue 3

7 ISSUE 3 | 2021 Actuaries design BOLI to tread as closely to that “minimum required icing” line as possible to keep the NAR down as low as possible (but still enough to qualify as life insurance.) Why? Because the less insurance benefit (NAR) that is provided, the less the charges that are taken out of the Cash Value to pay for the cost of that insurance benefit. Less charges taken out of the Cash Value can mean a higher net growth rate for the Cash Value. It is a lean insurance product, and that means better BOLI yields for you. What Does This Change Mean For You? So what does this change in the valuation interest rate mean to you? With this new, lower interest rate, the amount of icing required on your BOLI cake can be a lot less. One insurance company just provided illustrations showing that for a 45-year- old male and a BOLI premium of $100,000, the NAR will only have to be about $100,000 instead of $300,000! The result for this insurer is a higher return, on the order of about 0.15% in year one trending up to almost 0.40% in year 40. Now be careful here; this isn’t necessarily going to be the same for every insurer. This particular insurer is also making some other changes to their product at the same time such as reducing the guaranteed minimum credited interest rate from 1.5% to 1.0%, and making some minor changes to their 1035 Exchange Charge schedule. The approach that each insurer takes to updating their insurance products will vary greatly. The impacts upon product returns will vary accordingly. Different insurers will have different approaches to updating their products. Some will provide the opportunity for you to buy Rich has worked in the Executive Benefits and Bank-Owned Life Insurance markets for over two decades and is an Endorsed Provider for the CBA. You can call Rich any time at 307-763-0070 or email him at rich.bratten@bcc-usa.com to discuss a new plan or to get advice on your existing situation! now and then and update your product later if you want, once the insurer figures out the new pricing. Some insurers may even offer you the choice to move your existing BOLI policy into the newly priced product if you’ve recently bought a policy within the last few months. Other insurers will give you a choice of buying now under the old rules or holding off to buy under the new rules in a month or two. Other insurers may offer other opportunities. Next Steps You should talk to your trusted BOLI advisor to see what this new development means for you. If you can’t name that advisor right now off the top of your head, then you should call me! My clients can tell you who I am because I provide the kind of proactive service that they count on. They pretty much know me as, “That guitar-playing, extroverted actuary (that’s NOT an oxymoron) with a bazillion miles on his truck because he’s always driving around to see us.” Give me a call and I’ll be happy to stop by (or Zoom if you prefer) and see you too! 