Direct Marketed Life Insurance for Your Financial Institution

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(Last Updated On: July 1, 2020)

Life Insurance: The Need

Only 59% of Americans have any type of life insurance. That’s a concern, and it goes deeper. According to life insurance industry group, LIMRA, nearly half of U.S. households are underinsured, with an average coverage gap of $200,000.

This brings to mind GoFundMe campaigns for funeral costs. Have any friends shared appeals on your feed? This loss of financial stability can leave many families in a downward cycle of debt and poverty.

No one should have to suffer that situation. Besides, it’s simply incompatible with the people helping people mission of financial cooperatives. So, what can your institution do to help?

Sure, you could donate to online fundraisers. And, for them, it is the last and best option. How about providing a solution that avoids the situation for other members? While also giving your institution a non-interest income stream.

One strategy is to offer life insurance options. There are a few, and each is unique, so we’ll talk you through them in this article. Then, we will share info on providers which offer these products. Like what you see? Reach out once you are educated.

Hold up. Should your institution even offer these insurance protections? Get the information necessary to make the right decision. Or, do you already have a program and want to see the current offerings? Here for you, too.

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Protection when it’s needed.

Let’s start with the types of life insurance to help you decide which best fit your account holders. If you just want to jump straight to the providers (and what each offers), skip over the explanations.

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Term Life Insurance

Here’s an easy memory trigger: Term = Temporary. Term life insurance provides low-cost coverage for a specific time period. It can be Level or Decreasing. Unfamiliar with those terms? That’s ok.

Level Term

With Level Term coverage, the face amount remains the same. It is best suited to cover continuing financial obligations, such as raising a family (make sure to account for the enormous food cost increases with teenagers!).

Decreasing Term

Decreasing Term coverage is best for financial obligations that cost less over time. Most often this covers debts like a mortgage.

More Details

Most direct-marketed life insurance is Level Term and guaranteed renewable to a certain age. So long as the insured pays the premium, it cannot be canceled by the insurance carrier.

In a similar vein, the premiums are guaranteed for a specific period. After this time, the rate increases to a new level. It then remains consistent until the insured reaches the next age bracket.

There is no refund or cash value upon cancellation or termination.

Whole Life Insurance

If Term represents temporary, then Whole means permanent. Whole Life Insurance works best for long-term obligations. Unlike Term Life, it builds a cash value. It’s also a more complex product.

Let’s go through the highlights.

First, premiums. They remain consistent on Whole Life policies. For each dollar, a portion goes towards covering the risk. The balance of the premium builds a cash value. As this grows, the actual risk to the insurance company falls.

Whole Life Level Death Benefit Chart

Cash Value

Whole Life is considered a “living benefit”. Policyholders may access the cash value through a policy loan at any time. However, in the event of the insured’s death, the insurer deducts any outstanding balance, plus interest, from the death benefit.

You may have seen these Whole Life policies as “forced savings”. They carry tax-advantages. As a result, these cash values are used for various life events, including supplementing retirement income.

To make clear: Funds withdrawn from the policy come out of the amount paid at time of death.

In the short term, Whole Life premiums are much higher than Term Life. However, it’s important to consider the intent of having insurance. Is it for providing needed income in the case of death, or are you looking to build a savings fund long-term?

Considering the accumulation of cash value, Whole Life can be less costly in the long run than Term.

Underwriting for Direct Marketed Life Insurance

Quick and easy are not words you associate with an insurance application. Most are long and complex, sometimes taking several weeks to complete. Depending on the amount and other factors, it may also require a medical exam.

That’s a problem. Besides the obvious time and effort spent, why?

Medical Record

Well, medical exam requirements scare people away. Not just a few potential policyholders, either.

Half of consumers said they would be more likely to buy a life insurance policy if it was priced without a medical exam. (2018 Insurance Barometer Study by Life Happens & LIMRA)

To attract this enormous potential market, several insurance administrators built their own “Simplified Issue” underwriting processes, using an all-digital platform.

With a short online application and a few medical questions, a consumer can get an instant decision. Their policy can be “in hand” in as little as 10 minutes.

Quick and easy. Now words you can associate with life insurance. Along with more people covered and greater revenues.

Guaranteed Issue

This is the form of life insurance you used to see ads for on TV. “And you can’t be denied!” (Ok, maybe they still do market, but I only watch streaming services.) Called Guaranteed Issue Whole Life; it’s mostly for older people without other insurance.

What’s different? Well, it’s a standard whole life insurance policy made for people with pre-existing health conditions, who would otherwise not qualify. So there’s a limitation. We’ll get to that.

Of course, being people with families and expenses, they continue to have a need for coverage.

Some reasons one would choose guaranteed issue insurance:

  • Family obligations
  • Loss of employer group insurance
  • Payment towards final expenses

Ok, that limitation: If death occurs within the first two years, the death benefit is the total of all premiums paid. After the two years pass, the face amount becomes the death benefit. The policy continues in force so long as premiums are paid.

Industry Providers

Kids As Office Workers
No guarantee actual agents will be as young. But they will be focused on your member’s protection.

Our industry has a few direct marketed Life Insurance providers. Each offers and administers programs for credit unions and community banks. For comparison purposes, we’ll look at benefits from the two largest providers.

TruStage – CUNA Mutual Group (CMG)

TruStage Logo

The first provider is CUNA Mutual Group (CMG). They operate exclusively within the credit union industry with their TruStage brand. Chances are, you’ve heard of them.

CMFG Life Insurance Company issues their policies, and they have a Financial Strength Rating of “A” Excellent by A.M. Best.

Term Life Insurance

  • Amounts (Age dependent): $10,000 – $100,000
  • Issue ages: 25 – 69
  • Age rate brackets: 5 year increments starting at 25

Whole Life Insurance

  • Amounts (Age dependent): $1,000 – $100,000
  • Issue ages: 18-85
  • Premiums remain level for life

Guaranteed Issue Whole Life

  • Amounts (Age Dependent): $2,000 – $25,000
  • Issue ages: 45 – 80
  • Premiums remain level for life

Franklin Madison

Franklin Madison Logo

Since the 1970s, this firm has marketed insurance programs to banks and credit unions like yours. We consider them more as an “independent”, as they partner with several insurance carriers, and even a Fintech.

This strategy lets them support a diverse product offering.

Their administrator for Term Life Insurance is Ethos. Policies are issued by Legal & General America, which has an A+ (Superior) rating from A.M. Best.

Franklin Madison also offers a Guaranteed Issue Whole Life Insurance program. It is underwritten by United of Omaha Life Insurance Company, part of the Mutual of Omaha group. They hold an A+ (Superior) rating from A.M. Best.

Disclosure: We have an informal relationship with the team at Franklin Madison.

Term Life Insurance

  • Amounts (Age dependent): Up to $1,000,000
  • Issue ages: 20 – 65
  • Age rate brackets: 10, 15, 20, and 30 year options

Accelerated Death Benefit: This included rider lets the insured access a portion of the policy proceeds while still living, in the event the insured is diagnosed with a terminal illness.

Guaranteed Issue Whole Life

  • Amounts: (Age Dependent) Up to $20,000
  • Issue ages: 45 – 85
  • Premiums remain level for life

Non-Interest Income

Plant Sprouting From Coin Stack

Unlike AD&D, royalties on life insurance are typically highest in the first year. Providers may also offer a small residual royalty each year as the premiums continue to be paid. That’s income you earn by doing nothing.

In the first year, expect royalties between 10-20%. Ongoing may vary.

Marketing

Both companies use digital marketing for promoting their online life insurance programs. Expect to see strategies including:

  • Branded portals
  • Targeted email
  • Social media postings
  • Web banners

If you’re looking for additional data personalization, make sure to bring it up. Possibilities are far-reaching, depending on the analytics you already have.

That’s Life…

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Protect what matters.

Get the insights you need to select direct-marketed insurance products, from life to AD&D and more.

If your institution already offers a life insurance program, great. Use this content to help ensure it is operating at top performance for your institution and members.

Looking to change providers or to add direct-marketed insurance as a new product? Our advice is the same. Review the providers, their offerings, and the background we provide so you are educated ahead of time.

This is just one of a growing series on Direct Marketed Insurance products. Subscribe to the Learning Library to get our latest insights.

Joe Winn - CU Geek

Blogger. Speaker. Part-time Jedi.

Focused on helping your bank or credit union grow in the face of emerging challenges.