Debt Protection New Choices for Your Members; New Choices for Your Credit Union

Credit Unions now have a comprehensive way to protect their members', and their own, financial well being. Find out how you can stay competitive while also offering protection to your members.For years, credit unions have been protecting their interest and their members' interest by offering credit insurance on consumer loans. Depending on the coverage elected, the loan payment or balance was covered in the event of the member's death, disability or involuntary unemployment. Today, credit unions have a comprehensive way to protect their members', and their own, financial well-being - Debt Protection.

 

By My Credit Union

 

For years, credit unions have been protecting their interest and their members' interest by offering credit insurance on consumer loans. Depending on the coverage elected, the loan payment or balance was covered in the event of the member's death, disability or involuntary unemployment. Today, credit unions have a comprehensive way to protect their members', and their own, financial well-being - Debt Protection.

In September of 2001, the National Credit Union Association (NCUA) approved new regulations amending Rule 721 - Incidental Powers. This ruling includes the NCUA's approval of a federal credit union's authority to offer Debt Cancellation Agreements and Debt Suspension Agreements. Debt Protection programs are not considered insurance and therefore, are not regulated as such.

There are two basic types of Debt Protection to consider:

Debt Cancellation or Forgiveness - A program that extinguishes all or part of the debt if a covered event occurs. The debt can be cancelled as a lump-sum or on a monthly basis. There can be either full or partial reduction in the principal owed to the credit union, and also may include accrued interest.

Debt Suspension or Deferment - A program that suspends the requirement to make the monthly principal and cancels the monthly interest payments for a period of time if a covered event occurs, possibly deferring interest accruals. There is no reduction in the principal amount owed to the credit union, and the member remains obligated to resume payments on the debt when the period of suspension ends, until the debt is fully paid.

In addition to selecting the coverage mode, the credit union also has the option to retain or transfer all or part of the risk. If it elects to transfer risk, this can accomplished by participating in a Contractual Liability Policy (CLP*). Entering into such an agreement enables the credit union to transfer all or part of the risk back to a carrier.

American General Assurance Company - Your Debt Protection Service Provider

Debt Protection programs may be offered by credit unions in place of credit insurance or as a ''wrap-around'' product to credit on either closed-end or open-end loans. The credit union can customize the protection to suit its members' needs or select a pre-designed program. American General Assurance Company (AGAC), endorsed by NAFCU Service Corporation (NSC) to provide Debt Protection Program services to credit unions, offers such pre-designed programs - MemberShieldSM. MemberShieldSM, a series of Turn-Key Debt Protection programs, were tailor-made for credit unions and their members.

The MemberShieldSM/MemberShield PlusSM series of pre-packaged (''shelf'') Debt Protection Programs offers coverage for Credit Card and Unsecured Revolving Lines, and Closed-End Monthly Outstanding Balance and Home Equity Loans. Protected events include: Unemployment, Family Leave, Disability, Divorce, Stay at Skilled Nursing Facility, Critical Illness and Accidental Death. These competitively priced programs were designed with credit unions and their members in mind. Each of the MemberShieldSM programs include the following services:

  • Contractual Liability Policy/Risk Retention*
  • Sales Training
  • Marketing Support
  • Management Report
  • Local Service and Account Management
  • Overall Program Administration Including Benefit (Claims) Activation
  • Periodic Program Analysis

    * CLPs are offered through American General Indemnity Company. Availability varies by state.

If a credit union opts for a customized program, AGAC can also provide expertise in the following areas, in addition to those listed above:

  • Program Development
  • Establishing Reserves
  • Pricing
  • Periodic Program Analysis


Debt Protection Offers New Advantages for Your Members

Unlike insurance contracts…

  • Based on the program the credit union selects, members may have protection not available to them before, which may be better suited for their lifestyle.
  • Members may prefer getting coverage directly through their credit union, rather than an insurance company

Debt Protection Offers New Advantages for Your Credit Union

Unlike insurance contracts…

  • There are no certificates to file with the state insurance departments
  • More loans can be protected because all borrowing members are eligible (depending on program selected)
  • This program can be marketed to members at a cost determined by the credit union. The credit union may decide to offer it as a pass-through cost or to build in the necessary operating margin.
  • Insurance licensing of credit unions and their loan officers is not required.


Credit unions now have an opportunity to offer a program that will enable them to remain competitive in the marketplace, while offering valuable protection to their members.

 

This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.

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July 14, 2003


Comments

 
 
 
  • CommunityAmerica CU is very interested in "Debt Protection" but have concerns over the possible taxation of policy benefits. Until there is an official ruling on this we are hesitant to offer this to our members. We would be interested in other CU's thoughts on this. Judy Grame Director Loan Services Support CommmunityAmerica CU 1.2 Billion Assets
    Anonymous
     
     
     
  • Insurance companies never stop trying to get credit unions to shill for them.
    Anonymous