Like a lot of people today, I find myself wondering just how long it will take for the economy to fully recover from the difficulties of the past year. While there have been some glimmers of hope, I still feel some unease — not knowing what will happen in the next year, month, or even week.
I realize this is how many credit unions and their members are feeling as well. In today's economy, credit unions are looking for ways to protect their bottom line, while members are worried about protecting their assets and their long-term financial security. Unfortunately, with so many families struggling to make ends meet, loan delinquencies have hit record highs:
- Indirect auto loan and home equity loan delinquencies were the highest ever during the third quarter of 2008 (American Bankers Association, Jan. 7, 2009).
- Mortgage loan delinquency hit a national average high (4.58%) for the fourth quarter of 2008, up nearly 16% from the previous quarter and approximately 53% from the same period in 2007 (TransUnion, March 3, 2008).
These delinquency rates are putting a strain on credit unions' balance sheets, not to mention the toll they are taking on members' credit ratings. But, they are exactly the reason payment protection products — like credit insurance and debt protection — were developed. In tough economic times, the security they provide to members and credit unions is critical. The chart at right outlines basic payment protection products and what they do for the insured member. What it doesn't show — between the lines — is what these products do for credit unions: help protect their bottom line.Even in more stable times, credit unions can benefit from the increased income potential of payment protection products. These products represented 4.5% of credit unions' net income in 2008, according to CUNA Mutual Group research. And, members can benefit from the peace of mind they bring-payment protection coverage helps ensure members can pay their monthly bills if they become seriously ill or injured, or even if they lose their job. But, in tougher times, these products offer even bigger benefits: they offer credit unions protection against potential losses from loan delinquencies and members' protection against potential bankruptcy or mortgage foreclosure.
One payment protection product that has seen changes recently is credit disability insurance — or, more specifically, joint credit disability insurance. In the past, many states had not approved offering joint credit disability insurance and many data processors didn't have the technology to support it. However, joint credit disability insurance is now approved in all but eight states, and — due to mergers and upgrades — most credit union data processors can support it.
Even more importantly, dual-income households are now the norm. In fact, according to the Bureau of Labor Statistics, more than 60% of families with children under age 18 had both parents employed outside the home in 2006-2007. For these families, if either income earner became disabled, it could devastate them financially.
Consider this: The financial strain of disability is the leading cause of bankruptcies and mortgage foreclosures (Health Insurance Underwriter, May 2008). And that brings me back to the point of payment protection products: helping members and, subsequently, credit unions, protect their financial security. In today's economy, there's no question payment protection is more relevant than ever.
Dan Kaiser is vice president of Payment Protection Products at CUNA Mutual Group. He can be reached at 608.232.6243 or
