Sen. Cloud’s bill letting banks swap underperforming life‑insurance policies advances amid consent concerns

The House Insurance Committee on Tuesday voted to report Senate Bill 509 as amended, a measure from Sen. Cloud that would clarify that banks retain an insurable interest in former employees for the purpose of exchanging one bank‑owned life insurance policy for another.

Sen. Cloud told the committee banks sometimes hold BOLI that now yields only "1 to 2 percent" interest while newer products earn "3 to 4 percent," and that the exchanges would let banks pursue better returns that help fund employee retirement benefits. "A bank shall be deemed to maintain its insurable interest in a former employee for the purposes of exchanging one bank‑owned life insurance policy for another," she said while introducing amendment set 5804.

Supporters, including representatives of smaller community banks, said the change addresses legal uncertainty that can lock banks into underperforming products. Sen. Cloud read correspondence from an Evangeline Bank representative saying some participant benefits have fallen far short of original projections, creating pressure to fix the law.

Opponents pressed the committee on consent and consumer protections. Tom Clark of the American Council of Life Insurers said the industry lacks consensus on whether initial consent at policy issuance covers later exchanges, and warned of litigation and unresolved federal tax and regulatory questions. "We need to be very cautious and careful about that," he said, urging study and alignment with forthcoming federal guidance.

Several lawmakers raised practical questions about alternatives — surrendering cash values, underwriting for a new policy, or contract provisions tied to separation events — and whether making exchanges would create taxable events. Senator Cloud said she would not advance a final bill that lacks "sufficient consent language" and pledged to work with members and stakeholders to draft that standard.

The committee recorded the motion to report SB 509 as amended and the roll call produced a 7‑yea, 4‑nay outcome. The committee did not adopt new consent language during the hearing; supporters said the amendment clarifies insurable interest but leaves consent to be addressed later in the legislative process.

What’s next: The bill is reported out of committee and may be scheduled for floor consideration. Sponsors said they will continue negotiations on specific consent language and watch for federal guidance that could affect tax treatment and implementation.