HERE'S A New Year's resolution that could save you thousands of dollars of needless home mortgage expense: Be on guard for a new wave of insurance pitches from your lender promising you low-cost life, credit, disability or accidental death benefits coverage.
The odds are, say independent insurance and mortgage industry experts, that the coverage you're being offered is available elsewhere for a lot less -- if you need it at all.
Consider the intriguing offer that came in the mail last month to a number of Maryland homeowners in the Washington suburbs from their mortgage company. As an expression of "appreciation for your business," the lender promised a gift of $1,000 in "complimentary accidental death coverage" for two years. The gift represents "an excellent foundation to provide for the financial needs of those who depend upon you." Better yet, said the promotional letter, rather than be limited to just $1,000, "You can strengthen that security when you purchase additional accidental death protection. For just pennies a day, you can provide an additional $10,000 to $200,000 worth of protection to your spouse and/or dependents."
"Remember," added the letter, "a serious accident-causing death occurs every 360 seconds in America." The additional insurance coverage -- for up to $36 a month or $432 a year -- could be rolled into the homeowners' regular monthly mortgage payments.
The p romotion the Maryland homeowners received is part of an industrywide push for mortgage companies to mine their customer databases to "cross-sell" insurance policies and other financial products. Mortgage companies say the intent is to expand the variety of services they provide to their customers.
But another motivation for mass-market cross-selling is pure profit: The insurance products lenders market to borrowers frequently are overpriced and cut lenders into 40 percent to 50 percent of the total premium payments, according to James Hunt, an actuary who once worked for Savings Bank Life Insurance Co. of Woburn, Mass., but who now is a consultant to the Consumer Federation of America.
The deal gets even sweeter, according to mortgage marketing consultant Allen Hardester of Columbia, when the lender owns or is affiliated with an insurance agency. Then the combined commission cut can jump to 70 percent or more, Hardester says. Generally, none of these relationships or commissions is disclosed to the mortgage borrower.
The mortgage firm that sent the offer to the Maryland homeowners, FT Mortgage Co., of Dallas, would not discuss the compensation it receives from Liberty Life Insurance Co. of Greenville, S.C., for marketing accidental death policies.
FT Mortgage handles the monthly payment accounts for approximately 400,000 home loans nationwide.
Lynne Brown, insurance manager for FT Mortgage, confirmed that the company receives fees on new accidental death policies written, and that the firm is affiliated with an insurance agency, First Tennessee Insurance Services.
Brown added that her unit also markets disaster insurance, term life insurance, and mortgage life.
So what's wrong with cross-selling insurance?
After all, the accidental death pitch promised $1,000 in "complimentary" coverage. The problem, according to Hunt, is that accidental death benefit "is what we sometimes refer to as 'junk insurance.' "
Given the remote statistical chance under most policies that an insured person will die in an accident that qualifies for benefits, he said, "accidental death [insurance] is not what anyone really needs. What you need is term life insurance coverage" -- i.e., insurance that pays your spouse or children almost no matter how you die, except suicide.
Even the "pennies per day" promise for $200,000 of ADB coverage is higher than what many household heads pay for standard term life insurance.
For example, a visit to one of the Internet's popular sources of insurance quotes, Quotesmith.com, found 25 life companies offering $200,000 worth of term life insurance coverage to a 30-year-old, nonsmoking male living in Maryland for annual premiums of $158 to $171. The same individual would pay $288 for tightly conditioned accidental death coverage under the FT-Liberty cross-sell program.
The conditions to qualify for payment on the accidental death policy are tough: You almost need to walk down the street and get hit by a car or brick and die to collect.
You get nothing if you: die from any illness or infirmity of body; die from an injury inflicted by anyone else unless you can prove you were an "innocent bystander"; are a rider or driver "in any kind of race"; among other exclusions.
The bottom line here: As a homeowner, you do need life insurance coverage. But your best source may not be your mortgage company. Shop around -- even if the pitch says the first $1,000 of protection is free.
Washington Post Writers Group
Pub Date: 1/10/99