Life insurance update for state-chartered credit unions in Indiana

Good news for state-chartered credit unions in Indiana. On March 6, 2012, Indiana simplified the process for credit unions to buy life insurance to fund employee benefit plans. New Subsection (c) of Indiana Code § 28-7-1-9 provides

  • (c) Subject to any limitations or restrictions that the department or a federal regulator may impose by regulation, rule, policy, or guidance, a credit union may purchase and hold life insurance as follows:
    • (1) Life insurance purchased or held in connection with employee compensation or benefit plans approved by the credit union’s board of directors.
    • (2) Life insurance purchased or held to recover the cost of providing preretirement or postretirement employee benefits approved by the credit union’s board of directors.
    • (3) Life insurance on the lives of borrowers.
    • (4) Life insurance held as security for a loan.
    • (5) Life insurance that a federal credit union may purchase or hold under 12 C.F.R. 701.19(c).

We understand that the Credit Union Division will still require credit union boards to strictly adhere to the guidance contained in the Interagency Statement on the Purchase and Risk Management of Life Insurance that is applicable to banks and savings associations. Among other things, Indiana boards must:

  • Limit the investment to 25% of capital, unless the credit union’s board approves a higher level. Credit unions exceeding this level should expect close scrutiny on examination.
  • Review policy performance at least yearly.
  • Use vendors (brokers, consultants, agents) and insurers that have a long-term commitment to the industry.