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    Insurance | 3 min read

    Credit Life Insurance and the Underinsured/Uninsured American

    According to the 2016 LIMRA Ownership Study, almost half of all U.S. households have an average life insurance coverage gap of $200,000 per household. This same research also showed that 37.5 million households do not have any life insurance at all which means that 30% of U.S. households are completely uninsured. There is a silver lining in this research though, particularly for financial institutions, as the LIMRA findings identified that trust is the number one factor that comes into play when an individual does indeed purchase life insurance coverage. And guess who they trust first and foremost? Their financial institution. The main driver for purchasing life insurance is to replace lost income so that debts can be paid.This sounds like the perfect rationale for providing credit insurance to your borrowers!

    The beauty of credit insurance is that it is obtainable in small amounts.With most insurance carriers, $100,000 is the minimum face amount for a fully underwritten (best pricing if insurable) term policy. Conversely, $25,000 is often the maximum amount for a guaranteed issue (no medical evidence), individual life insurance policy. Credit life insurance can be purchased in exactly the specific amount to cover the outstanding loan balance and tracks the decreasing balance of the loan until it is paid off. Pretty slick—just the right amount of coverage at all times.

    Individuals can also purchase credit disability and credit involuntary unemployment coverage (the latter just with SWBC Life in the state of Texas only) which ensures that the borrowers' monthly payments are made for a set number of months if they experience either of these two events. But you know what? Many individuals that can qualify for credit disability cannot buy an individual disability policy on their own as they may not be able to financially justify the purchase.

    And then finally, let’s take a look at the ease of applying for coverage as well as making the monthly premium payments. The purchase of credit life, disability, and involuntary unemployment can be done right at the time an individual is taking out a loan, and the premium is incorporated into the monthly payment. It really can’t get too much easier. The real difference that comes into play is the pricing. Individual life and disability insurance is based on a person’s age, gender, smoking status, and overall health. As an individual gets older, the rate automatically increases and then if a medical condition kicks in, the rate gets even higher. Credit insurance is typically priced on a composite rate for a financial institution, meaning that there is one rate per $1,000 of coverage, regardless of age, gender or health, for a single borrower or for co-borrowers.Now that’s a customer-focused product that you can provide to your client.

    Yet, the actual offering of this product is the number one stumbling block enabling an individual to purchase coverage. If they do not know it is available, how in the world can they ascertain if the coverage is right for them? Hinting that an individual may die is difficult for many folks, even loan representatives, but guess what? We all do…eventually. The difficulty really lies with the loan representative thinking that they know the client well enough–they know their family situation, their financial condition, their wants and wishes, etc., and they make the decision to not offer your borrower protection. The result? Another uninsured or underinsured American and a loan that may go into default if death, disability, or involuntary unemployment strikes your borrower.

    It’s such an easy fix. Help your clients become part of the 70% of U.S. households that are covered with some life insurance.

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    Joan Cleveland, CLU, ChFC, REBC

    Joan Cleveland, CLU, ChFC, REBC leads SWBC Life Insurance Company as President and CEO. With more than 30 years of experience in the life insurance industry. She holds her Agent licenses for Life, Accident, Health Insurance, and has multiple FINRA securities Licenses. Joan is a frequent industry speaker and media spokesperson. She is a member of the Board of Directors of the Consumer Credit Insurance Association, the Texas Association of Life and Health Insurers, as well as the Life Insurers Council. In addition, she is chair of LIMRA’s Strategic Marketing Issues Committee.

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