Two insurance carriers have designed life insurance products for bank mortgage customers.
Commercial Union Life Insurance Co., Boston, and Lincoln (Neb.) Benefit Life Insurance Co. are betting on two enhanced versions of traditional mortgage life insurance.
The products have a component that builds up cash value so customers can pay off mortgages early or use the money for future expenses such as college tuition or retirement.
"For some of the baby boomers who never got life insurance, this is a way to meet some of their family's financial needs," said Prestin Martin, chairman of San Francisco-based Homevest Financial Corp., an insurance agency that is marketing the Lincoln Benefit product.
As regulations governing life insurance sales at banks relax, bankers are looking to add more sophisticated products to their menus. Before the U.S. Supreme Court affirmed banks' rights to sell life insurance last year, banks could only sell credit life or mortgage life insurance.
But mortgage insurance is limited and does not sell well at banks. It pays policyholders' mortgages if they die but does not offer any other benefits.
In the Lincoln product, the typical customer will most likely give the bank a $20,000 or $30,000 down payment for a home. The bank puts all but 5% into a mortgage insurance policy, which pays a death benefit of $120,000 to $130,000, Mr. Martin said.
Lincoln invests the down payment in two accounts. About half goes into one managed by Lincoln Benefit, which customers can draw from whenever they want. The other is managed by Morgan Stanley & Co. and is used to pay off the policy.
"This kind of thing is done all over Europe," Mr. Martin said. The company is pitching the product to LaSalle National Bank, Chicago, and hopes to sign on five banks and mortgage companies over the next two weeks, he added.
Commercial Union, based in Boston, designed a similar product at the request of one of its clients, First Bank of Rochester, N.Y. That product, which also offers customers a chance to build up cash value, comes with software to help policyholders make financial decisions.
Customers can use it to figure out when they can pay off their mortgages or how much they will need to invest for college tuition or retirement years.
"It gives a tremendous amount of flexibility," said Gary Warden, Commercial Union's senior vice president in charge of sales through banks.
"The reason only 2% of people buy mortgage insurance is that the day you pay off your loan, your insurance has no value," he said.
Indeed, many banks are beginning to find that mortgage customers are more receptive to life insurance pitches than people who walk into the branch seeking investment products.