1st Quarter

No. 17

  IZALE Financial Group eNews
Spring has already arrived and here in the Midwest we are ready to get moving. This eNews has some ideas and strategies for future growth for both institutions and individuals. Our team is lucky to work for both the macrocosm and the microcosm with financial needs with our unique mix of specialized services.

Read on to see what wisdom we have for you on Indexed BOLI, A Successful Retirement Strategy, and how Treasury Regulations brought needed corrections to last year's tax law error, plus the current stats on BOLI.

We hope to see you soon!

Scott Richardson, Brenda Haag, Bruce Barge, Chris Richardson, Deb Hardimon, Fannie Mae Pantaleon, Gary Wilberg, Jeff Prescher, Joe Tripalin, Patrick Costello and Phil Aderton
Are You Ready for Indexed BOLI?

Despite lower corporate tax rates and a narrower spread between traditional bank-eligible investments and Bank/Business-Owned Life Insurance, BOLI continues be a powerful asset for your balance sheet. The earnings are competitive for the risk and accrue without any tax provisions. The book value is stable - rising interest rates won't result in mark-to-market adjustments like with bonds. At its core it's still life insurance and we've seen firsthand how the life insurance proceeds have provided invaluable benefits to an insured officer's family as well as to the institution.
BOLI crediting rates have remained somewhat stable since the beginning of 2018, and programs that deliver 3% or more yield out of the gate are readily available. While those rates have remained stable, market rates have moved generally upward even if in fits and starts. As of March 25, the 10-year Treasury bond was a mere 3 bps higher yield than the 13-week Treasury bill (with an inversion with shorter duration); the result is about 75bps-100bps of spread between 10-year Treasuries and BOLI. That's down from the historical average of over 200bps. That narrow spread has many institutions re-evaluating their inforce BOLI or delaying their next purchase of it. The thought goes that until there is greater reward for the risk of going longer, stay short.  
Ignoring the immediate lost earnings from staying on the sidelines, trying to time entry to the markets is challenging to say the least. What if instead of measuring your BOLI returns against fixed-income assets like bonds, you could measure them against an equity-index? Before you get too far on the ledge - we're not talking about exposing cash value to an index; cash values will always have stable book value treatment. What we're talking about is a transparent way to determine the crediting rate by measuring the change in an index, most commonly the S&P 500.
"Indexed Universal Life" or IUL has been available on a retail basis for more than 20 years, and in 2018 IUL accounted for almost 30% of permanent life sales. While widely available on a retail basis, it wasn't until recently that IUL became available with a single-premium, 100%-beginning-cash-value design associated with BOLI.

With IUL, the carrier offers a "floor" or minimum crediting rate (along with full book-value treatment) and a "cap" or maximum crediting rate that can flow from the change in the index.  
  • If the index is negative or below the floor, your crediting rate is the floor.  
  • If the index is greater than the cap, your crediting rate is the cap.  
  • If the index is in between, your crediting rate is the index.
While your crediting rate from month-to-month will vary between the floor and the cap, when back-tested against 50 years of actual S&P performance, IUL has impressive results. The table below shows the current floor and cap for two carriers that offer IUL BOLI. One is decidedly more conservative than the other in its design, however, the expected rewards may be worth the "less conservative" design.
© Scott Richardson 2019. All rights reserved.
By Scott Richardson, CEO IZALE Financial Company  
Call us to schedule a meeting to learn more about IUL, and whether IUL BOLI is right for you or check our Events page for upcoming Webinars! 
Financial Focus for Your Future
As people save their hard earned dollars for retirement - there are 4 attributes of the investment programs we advise our clients to use for accomplishing their goals:
1. The program should provide as much growth as possible.
2. The program should not allow for loss of capital.
3. The program  should defer or eliminate as much tax as possible.
4. The program should allow for distribution at any pace you desire. (No rules on when distributions should be made - or how much a distribution must be.)
By building your retirement account to accomplish these 4 rules - your retirement account will grow quicker and larger.
by Gary Wilberg, Executive VP, IZALE
Contact us to have our team help your with your future focus!  
Treasury Regulation Corrects the
2017 Tax La w Error that Impacted BOLI  
In the haste to pass and enact the Tax Cuts and Jobs Act of 2017 (TCJA 2017) as we have shared in the past, there were dozens of technical drafting errors. One in particular changed the "transfer for value" law and could have caused the loss of the tax benefits of BOLI that was acquired BOLI in an M&A transaction.

Rather than wait for Congress to correct the law, on March 22 Treasury released proposed regulations intended to address the issue. While analysis of the proposed regulations continues, our initial understanding is that C-corps and most S-corps can once again rely on the continued tax-favored treatment of BOLI acquired in a transaction.

If you are an S-corp and acquired BOLI through M&A after January 1, 2018, we encourage you to consult with your tax advisor to confirm if this Treasury regulation provides relief from TCJA 2017.
By Scott Richardson, CEO IZALE Financial Company
For more on last year's Tax Cuts and Jobs Act from IZALE read our Blog.   
Upcoming Events

4/4-6   Illinois Credit Union League Annual Convention     Chicago, IL

4/10   CBAI 35th Annual Capital Conference     Springfield, IL

4/10     How To Pay Your CEO with BalancedComp     Webinar

4/14-16      IZALE Client Conference     Austin, TX

4/18     Is It Time for Value-based Checking?     Webinar

click to visit now

Have you visted our online learning Video Library? We created a place for you to go 24/7 to discover more about the expert services we provide at IZALE. Current titles include:  The Art & Science of Executive Benefits, Demystifying BOLI with separate video tutorials for Banks and Credit Unions, and Split Dollar Loans.
Thanks for your time & attention. We understand the value of both! ~ Your Friends at IZALE Financial Group
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