20 CSR 1140-2.055 - Purchase of Bank Owned Life Insurance
(1) The powers and authorities of banks and
trust companies (bank) are set out in section
362.105, RSMo. This statute is
specific in the type of investments authorized by banks and it does not include
the purchase of life insurance for the bank's own account as an investment.
Accordingly, any purchase of insurance is allowed only if it is within the
incidental powers of a bank or it is reasonably related to a legitimate bank
interest such as the interest in protecting itself against loss.
(2) A bank may purchase life insurance to
indemnify itself against the loss of key management personnel. The amount of
insurance purchased must be reasonable in relation to the size and needs of the
bank. Also, the board of directors must document the basis upon which it
determines who qualifies to be covered by the insurance. The board must
document the basis for determining the amount of insurance needed to indemnify
the bank against the death of each individual. The bank must document and be
able to demonstrate an insurable interest and a legitimate insurance need when
insuring a key person. The authority to hold such a policy lapses if, because
of a change in employment status or responsibilities, the individual is no
longer considered a key person.
(3)
A bank may purchase life insurance in conjunction with providing employee
compensation and benefits or when the insurance is paid in part to the bank and
to the employee, which is commonly referred to as split dollar insurance. A
bank may also purchase life insurance in connection with an employee
compensation and benefit plan. The bank's funding obligation must be reasonable
and the projected cash flow from a life insurance policy must not substantially
exceed the projected liabilities to fund the compensation or benefit program.
Such life insurance policies may be held only so long as the bank's liability
under the associated compensation or benefit plan continues.
(4) A bank may purchase, at the bank's
expense, insurance on the life of a borrower to protect its interest in the
event of the death of the borrower. The maximum amount of insurance should not
exceed the principal balance of the borrower's obligation. Similarly, a bank
may take security interest in an existing policy. In no event may the bank's
decision to make a loan be based on the availability of the insurance proceeds
for repayment of the loan.
(5)
Accounting for bank owned life insurance policies must be consistent with the
requirements of generally accepted accounting principles. However, in no event
may a bank carry the value of that policy as an asset on its books in an amount
which exceeds the current cash surrender value of the policy.
(6) The cash surrender value of the policy
represents funds due from a corporation and therefore may not exceed the limit
on loans to one (1) borrower set by section
362.170, RSMo. The legal loan
limit also will apply to the aggregate book value of all policies, including
subsequent earnings, which are purchased from the same company. The bank should
examine the financial condition of the insurance company before purchasing the
policy and maintain access to and periodically review recent financial
statements of the insurance company. Finally, if the aggregate cash surrender
value of all these policies owned by the bank is large in relation to the
bank's total capital account, these amounts will be considered a concentration
of credit.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.