CUNA Mutual just announced that it is terminating credit union Loan Protection and Life Savings coverage for its US credit union customers by the end of 2014. Queen of Peace Arlington stopped Life Savings in the late 1980’s and phased out Loan Protection about ten years ago, with the last covered loan paid off in early 2009. In my opinion, these products, at one time a real mark of distinction for credit unions, had become quite expensive and not practical for almost all credit unions many years ago. Their time had passed.
Loan Protection (where the credit union purchases life insurance on member loans) goes back to the 1930’s and was the embodiment of “The debt shall die with the debtor”. At one time, this was a very affordable benefit for credit unions to provide. It protected the credit union, as well as the member’s family if the member died before the loan was paid off. Over time, as lending became more competitive, the cost to the credit union became more of a factor. In addition, I believe, members did not value such insurance when comparing rates on loans. Most credit unions moved towards member pay life insurance, which often covered higher loan balances, as well as joint borrowers.
Life Savings Insurance was matching life insurance purchased by the credit union based on the balance in the member’s share account, up to a certain maximum, most commonly $2,000. So, if a member had, say, $1,500 in a share account, and the member died, the beneficiary would get the $1,500 in shares and another $1,500 from the life insurance. There were various age limits (typically over 55), where only part of the balance was matched and then only if the funds were continuously on deposit before that age. This coverage was less expensive when most credit union members were young (and healthy). Decades ago, as well, there was a cap on the dividend rate credit unions (and interest rates banks could pay) could pay – so such insurance was a competitive advantage. As time passed, though, members valued this less and less. The costs increased with an aging membership, and it was difficult and complicated to track all the ages of deposit. Members became more “rate conscious” on savings, and the cost of this insurance ate into the rates credit unions could pay.
In the heyday of Life Savings and Loan Protection, some credit unions actively promoted taking out a share secured loan, pledging the proceeds against the loan – just to build up insurable share and loans.
It is not clear, at this time, whether any other insurance companies will continue to offer this product to US credit unions.