Bank Of America Offers Credit Protection, But Don't Call It Insurance

The cancelled payments also do not qualify as income, so BofA does not issue Internal Revenue 1099 forms reporting the cancelled payments to the IRS, she noted.

BofA dropped out of the single-premium credit life market last year due to unsatisfactory profits. The borrower protection product, introduced about a year ago, has, on the other hand, enjoyed growing acceptance among the banks loan customers, said Kenworthy. It has a cancellation rate “in the low single digits,” she said.

The monthly fee for the plan ranges from 6% to 18% of the borrowers monthly loan payment, depending on whether the purchaser wants coverage for one, two or all three of the protected hardships.

It is sold entirely at the point of sale for loans and mortgages, Kenworthy explained.

BofA lays claim to a customer base of 27 million households in 21 states plus the District of Columbia, Kenworthy reported, although the borrower protection is available in only a few states. Its customers make a total of 500 million visits to branches and other bank outlets each year, she notes.

The bank sees insurance as a significant way to deepen the banks relationships with these customers, Kenworthy observed.

“Insurance profits are durable profits,” she said.

Still, that potential remains largely untapped. Recent research by the bank found that its average customer spends about $4,800 annually on insurance, but only about 2% of that is spent with the bank. Last year, it pulled in around $150 million in premiums, which Kenworthy said amounted to about 0.5% of the banks total revenues.

“The opportunity is huge,” she said. “The penetration is small.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, April 22, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.