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Debt Cancellation Brings Added Benefits
to Credit Unions
Payment protection such as CUNA Mutual’s credit union-paid Loan Protection coverage has helped credit unions set themselves apart from the competition and given them a market advantage in serving members. Credit insurance in particular, whether credit union-paid or member-paid, has long been used to protect loans. In fact, payment protection products have not only supported the financial institution’s bottom line, they have protected members from financial duress when life’s circumstances made it difficult to make timely loan payments.
Several years ago, other types of financial institutions, especially credit card companies, began offering a wider variety of loan protection products to current and potential customers, including credit union members. Many of those members began asking their credit unions why they weren’t offering new products in place of traditional credit insurance. In one case, credit union officials responded promptly and effectively to its members’ concerns.
Founders Federal Credit Union, based in Lancaster, S.C., had realized good success with its credit insurance program. In fact, the program experienced approximately a 40% participation rate. Despite their success, officials knew they needed to offer more options or additional products or features and package them to better meet members’ needs. The right program could help even more members at their credit union. The credit union could also compete more effectively with loan protection options offered by the competition.
The solution for Founders proved to be CUNA Mutual’s debt cancellation product, which offered pricing and protection that met the needs of an increasing number of members. Debt cancellation is not an insurance product, but a two-party loan agreement between the credit union and its members. Covered members pay a fee for payment protection if certain specified events occur, including death, disability, involuntary unemployment, family leave, hospitalization, and military relocation loss. Members were able to choose the protection best suited to their needs and, with shorter benefit duration periods, plans that sometimes lowered the cost of protection.
After evaluating other vendors’ products, Founders chose CUNA Mutual’s debt cancellation product for a variety of reasons. The pricing of the product and the ability to convert members to debt cancellation from credit insurance proved appealing to the credit union. Officials also liked the fact that the contract didn’t limit claims to just one incident, thereby offering the members greater flexibility and reinforcing the credit union’s commitment to its members’ financial well being.
How did Founders do? After a period of intense training of the credit union’s loan staff by CUNA Mutual representatives, the program launched in November 2004. Within the first year, profit from payment protection increased. In addition to the 28,526 loans worth $86.2 million already protected with credit insurance, Founders reported an additional 16,675 loans worth $85.7 million protected through debt cancellation. After the first year of offering debt cancellation, Founders was able to nearly double the loan amount protected, making coverage more affordable to a wider cross-section of members. The products generated $459,000 and $319,000 in income for that year, respectively, significantly increasing the credit union’s income from payment protection products.
The ability to better meet member needs, reduce the threat to credit unions, and earn the institution non-interest income is an unparalleled opportunity, one that Founders was able to take full advantage of through CUNA Mutual’s debt cancellation products. Your credit union may also see value in introducing debt cancellation to your members. Ask your CUNA Mutual Sales Executive for more information.
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© CUNA Mutual Group 2007. Used with permission.
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