Credit Life Insurance

Related Topics

Loan protection insurance is an optional benefit provided by the credit union for its borrowing members. Member-pay loan protection insurance is a coverage plan whereby the member pays either all or a portion of his total premium amount each month.

Portico calculates and posts credit life insurance premiums for CUNA Mutual, Minnesota Mutual, PHF Life Insurance Company (formerly Richard J. Katz), and Creditors Resources. Portico also supports truncated coverage for level-rate insurance for credit unions using CUNA Mutual.

Depending on the credit union's loan protection insurance policy, certain coverage maximums are used for determining eligibility for coverage. The following coverage limits must be specified on the report rules of the Credit Life Insurance Report 485.

  • Maximum insurable age
  • Maximum insurable loan amount
  • Maximum insurable repayment duration
  • Maximum duration term for truncated level-rate credit life insurance coverage

In addition, the 485 Report Rules allow you to specify premium rates for single life coverage and for joint life coverage, and the percent of premium paid by the credit union, if the credit union pays a portion of the member's premiums.

Non-coverage Guidelines

A loan or a portion of a loan can be non-covered based on the maximum coverage limits established for the credit union. Portico automatically calculates non-coverage in the following circumstances:

  • Loans for participating members who are over the maximum insurable age limit are not charged an insurance premium and appear on the 485 Report with the appropriate explanation.
  • If the eligible loan(s) of a participating member exceed the maximum insurable amount, premiums are calculated for each loan up to the maximum insurable amount. The non-covered excess over the maximum amount is calculated at the time a loan is established or when the loan is refinanced. The excess amount appears in the Excess Amount Not Covered field on the Loans - Insurance tab.

If the credit union changes from one benefit plan to another, Portico can recalculate the non-covered excess based on the current insurable maximum balance. Recalculation is performed only on loans eligible for member-pay CLI. Loans with changes in the excess amount are reported on the 030 Report.

  • Eligible loans, which have not been repaid within the maximum duration time limit, are not charged an insurance premium.
  • If a participating member is more than a specified number of days delinquent on the loan at month end the system will stop collecting the monthly premium. The exception message EXCESSIVE DELINQUENCY/COVERAGE STOPPED appears on the 485 Report indicating this action. The credit union can define between 1 and 999 days for the maximum delinquent setting on the 485 Report Rules. If a loan becomes current or drops below the maximum delinquency value at month end, the system will resume posting insurance premiums. It is the credit union's responsibility to remove the insurance designation at the loan level if their insurance policy requires that a delinquent loan re-qualify for coverage.

Premium Payments

The total premium payment for a loan is calculated by multiplying the loan's insurable balance by the appropriate premium rate. The rate used depends on the type of coverage for the loan, single life or joint life. To determine the member’s premium payment, Portico calculates the total premium for the loan, multiplies it by the credit union's percentage (if any), rounds to the nearest cent and subtracts this credit union-paid amount from the total premium.

The premium can be paid by share withdrawal or loan add-on:

  • Share Withdrawal
    The amount of the premium is withdrawn from the member's lowest numbered share account. The member’s share account is debited and the accounts payable GL (801910) is credited. If the member's available share balance is less than the amount required for premium payment, the calculated premium appears on the 485 Report with a message indicating the premium was uncollectible from the share account. Portico will not attempt to obtain the funds from any other share accounts.
  • Loan Add-on
    The amount of the premium is added to the member's loan for which the premium is calculated. The member’s loan is debited and the accounts payable GL (801910) is credited. If a loan is delinquent, the loan add-on will still be allowed. The credit union is responsible for stopping a member's coverage if a loan is delinquent.

The CLI Coverage Option field on the New Loan – Setup tab and Loans – Insurance tab indicates the type of Credit Life Insurance coverage on the loan and whether the premium is added to the loan or withdrawn from shares.

Reporting

The Credit Life Insurance Report 485 is produced monthly as part of the month-end processing. The report lists all members covered with the amount of the member's premium, the credit union's premium (if any), the total premium, and exceptions discovered during processing. Loan protection insurance premium payment transactions appear on member statements under the proper share or loan account depending on method of payment. The transaction description is LOAN PROTECT PR. The premium payment, by share withdrawal or add-on, is reported on the Financial Transaction Register Report 420. The transaction code is LP.

Setting Up Credit Life Insurance

Credit Life Insurance Report 485

The following items must be specified on the report rules of the Credit Life Insurance Report 485.

  • Maximum insurable age
  • Maximum insurable loan amount
  • Maximum insurable repayment duration
  • Maximum duration term for truncated level-rate credit life insurance coverage
  • Premium rates for single life coverage and for joint life coverage

CUNA Insurance: If CUNA is your credit union’s insurance company, CUNA recommends setting the maximum insurable repayment duration to 999. In addition, any joint insurance should be set up with the Joint to Single to None option.

Credit Union Profile – Loans tab

The Credit Life Insurance check box in the Insurance section on the Credit Union Profile – Loans tab indicates whether Portico calculates and posts credit life insurance (CLI) during the month-end back-office cycle. If the Credit Life Insurance is member-pay or member and credit union-pay, Portico uses the 485 Report. If you pay the entire premium for the Credit Life Insurance (group-pay), Portico calculates and posts the premiums using the Group Loan Protection Insurance Report 480. The Calculators - Truth in Lending window will include the CLI premium when calculating the payment for a new loan or recalculating the payment for an existing loan.

GL Account

Portico uses general ledger account 801-910 for Credit Life Insurance. The system will automatically build the GL when credit life insurance (CLI) is setup.

The Support Truncated Coverage for Level Rate Insurance check box on the Credit Union Profile – Loans tab indicates that Portico will determine closed-end loan eligibility for level rate credit life insurance using credit union-defined maximums. These maximums will be used to support truncated coverage on new loans. This check box should only be selected if your main credit union branch resides in a state where CUNA truncated coverage support has been introduced and maximums have been established for loans with newly-elected level rate insurance. Loans existing on Portico, prior to activation of truncated coverage, will continue to process without the new eligibility requirements.

  • When the Support Truncated Coverage for Level Rate Insurance check box is not selected, level rate credit life insurance processing remains unchanged, and truncated coverage support using a maximum duration term is not supported for level rate credit life insurances. Unselected is the default option for this check box and should remain the option until truncated coverage has been introduced in your state. Credit life insurance will continue to support the maximum months insured option that is currently available on the 485 Report Rules. Insurance coverage elected dates other than the loan booking date are not allowed; therefore, insurance coverage is considered supported from the origination date of the loan.
  • If the Support Truncated Coverage for Level Rate Insurance check box is selected, truncated coverage support using a maximum duration term for level rate credit life insurance is supported. This allows a loan to be considered eligible for insurance where the insurance does not cover the entire term of the loan. In addition, insurance coverage elected dates, other than the loan booking date, are allowed. When a new loan is booked to Portico from Loancierge or another loan product, Portico will enter the effective date of the loan as the insurance coverage elected date.

For credit unions that have Portico calculate and post level rate insurance premiums using the 130 and 485 Reports, but CUNA is not their insurance partner, you verify that truncated coverage for level rate insurance is supported by your insurance vendor. The Support Truncated Coverage for Level Rate Insurance check box should not be selected for any of these vendors, Minnesota Mutual, PHF Life Insurance Company (formerly Richard J. Katz), and Creditors Resources, until verification has been completed.

Loan Profiles – Additional Information tab

The Contract field in the Insurance group box on the Loan Profiles – Additional Information tab specifies the type of Credit Life Insurance contract available for this loan type.

The Protection field in the Insurance group box specifies the default Credit Life Insurance code for this loan type. When a new loan is set up, the Life Coverage Option field on the New Loan –Setup tab defaults to the code in the Protection field.

The Credit Life check box indicates if the loan type with credit life insurance is eligible for Credit Insurance Participation tracking with CUNA Mutual. On a monthly basis, the credit union will extract tracking information using Reporting Analytics and copy it to a disk to send it to CUNA Mutual. It will be necessary to use Reporting Analytics history with this option.