Should You Offer Hospital Indemnity Insurance at your Financial Institution?

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(Last Updated On: July 4, 2020)

In 2018, 27.5 million Americans went without health insurance. That’s 8.5% of the population. This data is from a Census Bureau report, and it should shock you. Even worse, it was an increase of 1.9 million over the previous year.

Hospital costs in 2017 averaged $3,949 per day. Each hospital stay cost, on average, $15,734. These figures are devastating for families with limited budgets and no insurance coverage (really, no matter your income, that’s a lot for anyone).

It comes as little surprise that 60% of all bankruptcies are related to medical expenses. Getting care for being hurt or sick should never lead to bankruptcy, yet that’s where we are.

In lieu of reforming the entire health industry, we’ll help you understand a way you can protect your account holders from these scenarios: Hospital Indemnity Insurance. It even produces non-interest income for your institution. Read on to learn more.

When Health Insurance Isn’t Enough

Masks in Cross

Most of us, including many of your account holders, are privileged enough to have some form of health insurance. However, we watch as deductibles rise and copays expand.

Even with coverage, we fear the costs of recovering from an accident or sickness requiring hospitalization. The COVID-19 pandemic is only making these existing challenges worse for all parties.

Your financial institution can provide a shield, umbrella, band-aid, whichever metaphor you choose, to insulate account holders from these expenses. It’s called Hospital Indemnity Insurance, and it’s the topic of this article.

Below, we will dive into the what, who, why, and how of hospital indemnity insurance. Then, conclude with a look inwards to decide if this product is right for your institution and account holders.

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What is Group Hospital Indemnity Insurance?

Supplemental hospital indemnity insurance policies are a product of traditional insurers going back many years. They are most often seen in employer-employee groups.

Group hospital indemnity insurance provides financial assistance for the insured following hospitalization.

The memorable key feature of this insurance is that cash benefits are paid directly to the insured. Yes, the commercial you have in mind is this coverage.

Black Envelope with Cash Inside
Cash in hand. Literally.

The cash benefits can be used to pay what insurance doesn’t. That can include reimbursement for missed work, travel to medical facilities, or literally anything else. There are no restrictions on how the money is used.

AFLAC is the largest insurance company specializing in supplemental health insurance.  Other insurance carriers, such as Allstate, also market supplemental health policies through Allstate Benefits, their workplace division.

Who offers Hospital Indemnity Insurance?

Your bank or credit union focuses on digital transformation strategies. That’s essential. So must your providers. We will look at one firm which tailors their tech improvements on simplifying application and acquisition of insurance for your account holders.

This focus goes beyond core technology into their marketing and processing. In other words, digital means fast and easy.

Franklin Madison (Banks & Credit Unions)

Franklin Madison Logo

Franklin Madison is the main provider of Direct Marketed Hospital Indemnity Insurance, serving the credit union and banking channel.

Their insurance carrier is Federal Insurance Company, a part of The Chubb Group. They have an A.M. Best Financial Strength Rating (FSR) of “A++” Superior. 

For California residents, the insurance product is offered by Franklin Madison Insurance Services LLC. They’re underwritten by Minnesota Life Insurance Company.

Other Providers

PFP/The Family Security Plan: Providing insurance services to credit unions since the 1970’s, including life insurance and critical illness plans. Their accident only policy, similar to the Franklin Madison Accident Plan (HAP) below, is Guaranteed Issue.

Unfortunately, the company does not publicly share information on their insurance carrier, benefits, nor rates. We also cannot confirm it is a fully digital (direct) offering. Like many firms, you can get info only during a meeting with their sales person.

Selmanco: A long-term insurance provider to several industries, including the financial institution channel. They offer a wide range of products, however, like PFP, no public information is available on plans, benefits, nor rates.

We also cannot detail their experience in direct mail marketing. Finally, we do not know if they offer any digitally-marketed insurance products.

These two providers did not provide details for this article. However, we’re about transparency, so if you’d like to speak with them, by all means. All coverage and benefit details below are courtesy of Franklin Madison.

How does Hospital Indemnity Insurance work?

There are two types of Hospital Indemnity: Hospital Accident Plan (HAP) and Recuperative Care (Hospital Accident and Sickness). We’ll look at each, plus the benefits you can expect to provide.

Remember, this is separate from any health insurance a person may (or may not) have.

Hospital Accident Plan (HAP)

Hospital Emergency Room Sign

This is a supplemental plan that provides coverage for in-hospital stays caused by an accident.

Coverage Benefits Per Day

  • $900 ($1800 if in ICU) for up to 365 days
  • $1,800 Intensive Care Coverage (up to $657,000)
  • $900 Hospital Confinement Coverage (up to $328,500)
  • $450 Outpatient Emergency Room Coverage (visit within 72 hours of accident)

Additional Benefits and Terms

  • Family Benefits (Optional): 50/60% spouse, 20/40% children
  • No waiting periods
  • Maximum Benefit Period is 365 days
  • Guaranteed Acceptance coverage
  • 60 day free look with a 100% money-back guarantee

Since this a direct marketed insurance product, you’ll want to make it easy for your account holders to learn and apply. Franklin Madison works with you to produce a branded website with all the information pre-screened for accuracy.

Yeah, we can hear your compliance team’s cheers from here. Take a look at a Sample Portal to see how yours may look.

Disclaimer: Not all benefits are the same in every state. We wish they were, but you know how the laws are. Speak with your chosen provider to discover what’s possible in your service areas.

How much does the Hospital Accident Plan (HAP) cost?

Hand Holding Dollar Bill

The rates shown below are accurate as of June 1, 2020. Check with Franklin Madison to get the latest rate information.

Rates
  • Individual Plan: $17.65/month
  • Family Plan: $29.95/month 
Revenue Potential for your Financial Institution

The royalty rate is 18%.

Recuperative Care (Hospital Accident & Sickness)

Doctor in Hospital Hallway

This supplemental plan provides coverage for hospital stays due to accidents or sickness. It is Guaranteed Issue. You cannot be turned down and you cannot be denied for pre-existing conditions. Important note: COVID-19 is covered.

Coverage Benefits Per Day

  • $200 daily cash benefit for all kinds of sickness (up to $73,000)
  • $400 daily cash benefit for covered accidents (up to $146,000)

Additional Benefits and Terms

  • Family benefits (if selected): 50/60% spouse, 20% children
  • Covers pre-existing conditions
  • No waiting periods
  • Maximum benefit period is 365 days
  • Guaranteed acceptance coverage with no medical exam or questionnaire
  • 60-day “Free Look” trial period.
Stethoscope and iPhone

Once again, your institution gets a dedicated website for offering to account holders. Of course, they can apply directly on the site. Take a look at a Sample Portal.

Remember we said how important digital marketing is for the success of these products? Well, take a look at this credit union Case Study highlighting the success of an email campaign.

How much does Recuperative Care coverage cost?

The rates shown below are accurate as of June 1, 2020. Check with Franklin Madison to get the latest rate information.

Rates
  • Individual Plan: $24.00/month
  • Family Plan: $36.00/month

Sorry, Sunflower State residents, this coverage is not available in Kansas.

Revenue Potential for your Financial Institution

The royalty rate is 15%.

Why offer Hospital Indemnity Insurance?

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Too many of your account holders fear the costs of needing hospitalization. Even those with “great” health insurance may have deductibles, copays, and maximum out-of-pocket expenses.

Since essential medical care is, by definition, essential, it’s dangerous or impossible to put it off. However, it is also expensive to the point that the costs can financially destroy a family. Remember, 60% of bankruptcies are caused by medical debt. That’s not ok.

Your institution believes in protecting your account holders through a range of strategies.

Hospital Indemnity Insurance can be one of those sources of protection. And keeping your account holders financially solvent is also valuable for your institution! Not to mention the possibility of non-interest income.

We know your institution needs to make money. Do so while providing value instead of through fees. People are willing to pay when they see a reason to buy. Just ask every streaming service (piracy, although illegal, is possible and far cheaper).

Yet people pay because it’s the better solution. Hospital Indemnity Insurance can be that better solution for your account holders to worry less about medical costs, especially with the specter of COVID-19 everywhere.

And it’s another thread connecting them to your institution.

Complete your Direct Marketed Insurance Journey!

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Is she considering your insurance products online?

Hospital Indemnity isn’t your only option for Direct Marketed Insurance! In fact, you can learn from an entire section on our Learning Library, dedicated to the products you may want.

From things you may not know about AD&D to tips on offering Life Insurance, it’s full of content that helps you better serve your account holders, while generating more non-interest income. As always, we provide transparency and let you discover a range of providers.

It’s more important than ever to have a strong catalog of digital product offerings. Can your users access everything available to them easily through their phone? Or with their laptop on the couch?

Stay in the loop on these and other topics by Subscribing to the Learning Library. Get tailored content that you can digest on your schedule. With more than a dozen topics, there’s always something for you!

Joe Winn - CU Geek

Blogger. Speaker. Part-time Jedi.

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