Almost all credit unions have loan payment protection options such as credit life and disability insurance, debt protection, guaranteed asset protection (GAP), and mechanical repair coverage (MRC) available to members. If you want to understand why these products have endured—and why they can be a solid value for members—think about our nation’s long debate over health insurance.
Three key elements of insurance products are at the center of this debate:
Access: You qualify for it.
Competitive pricing: It’s priced so you can pay for it.
Reliability: Claims are processed and paid promptly.
Most often, these three elements determine why some people are adequately protected from financial hardship due to health issues and others are not.
You could add one more important element—convenience—because in some cases that’s as important as the other three combined. Just ask nearly anyone who tried to use healthcare.gov in the first couple of months after its launch.
Now apply these elements to payment protection, as sold through credit unions, and you see why these products remain an excellent value: Members have convenient access to competitively priced, reliable protection. And both parties win. Members reduce the financial risk of making a major purchase on credit, while the credit union protects its loan portfolio from delinquencies and charge-offs.
Let’s break down how payment protection can meet each of the three basic requirements.
Access: Immediate-issue products available at the point of sale Traditional life and disability insurance are good examples of products that are inaccessible for some members. Medical underwriting disqualifies some people who are older or have pre-existing conditions, or makes the premiums prohibitive. Members may have some life or disability coverage, but not enough to account for the additional risk that a new loan represents.
Your credit union can offer payment protection options that are issued immediately, with no medical underwriting, no long application forms, and no hassle for members.
Competitive pricing: Group rates priced for a limited risk Even members who qualify for traditional life and disability insurance may not be able to afford it at the time they take out a loan. But if your credit union offers credit life/disability or debt protection that has a single price for all members regardless of age and health, most members will have the means to add that premium to their monthly payments.
These group rates remain relatively low, in part, because the products are priced to cover a specific, limited risk.
Some payment protection products include options for the credit union to adjust the price, such as the length of disability coverage. Also, credit unions often have more affordable options for MRC and GAP products than members might be offered from, say, auto dealers or manufacturers.
Reliability: Claims handled efficiently reflect well on the credit union Members who choose payment protection products generally link the product to the credit union more than to the product’s provider. For example, when a member wants to say thanks after a credit disability claim payment helped her get through a difficult time in her life, she usually calls to thank the credit union, not the issuer of the policy.
It’s important to choose a strong provider with a long track record for member service, as the level of service reflects directly back to your credit union. In short, good service creates goodwill. Especially when your members who are most in need of protection discover that your credit union was looking out for them.Rich Trace is the director of Credit Insurance Product Management at CUNA Mutual Group.