Payment Protection Plan Credit Disability Credit Life Product

Payment Protection Plan Credit Disability Credit Life Product & Presentation Specialty License Training Program AMERICAN BANKERS INSURANCE GROUP

Credit Insurance Specialty License Training Program To comply with the training requirements set forth in the Section 1 (d) of Art. 21. 09, Texas Insurance Code.

Table of Contents Topic Page Number Overview------------------------------------------1 -2 Features & Benefits------------------------------------3 -4 Plan Highlights----------------------------------------5 Characteristic of Credit Insurance----------------------------6 -7 Credit Life – General Information -----------------------------8 Credit Life - Facts --------------------------------------9 Credit Disability - General Information -------------------------10 Credit Disability – Facts----------------------------------11 Waiting Period -------------------------------------12 -13 The Presentation ------------------------------------14 -17 Questions & Answers ---------------------------------18 -19 Objections----------------------------------------20 -26 Glossary of Terms -----------------------------------27 -30 Consumer Bill of Rights/Notification------------------------31 -32 Notes ---------------------------------------------33

Overview Introduction This booklet provides information that will enable you to offer the Payment Protection Plan with confidence to all of your customers who apply for a loan. What is Payment Protection Plan? The Payment Protection Plan is a credit insurance plan that includes the following coverages: Credit Disability (Credit Accident & Health) Credit Life What Can You Expect? After reviewing this manual and the Policies of Insurance, you will be able to: § Explain what credit insurance is and how it benefits your customers, you, and your company. § Describe the credit insurance coverages that your company offers. § Present the Payment Protection Plan accurately and confidently to your customers. § Respond to commonly asked questions about the Payment Protection Plan. Glossary of Terms If you encounter an unfamiliar word or phrase, refer to the Glossary of Terms located in the back of this manual. 1

Overview (cont. ) What is Credit Insurance? Credit insurance is term insurance that is purchased in conjunction with a consumer credit transaction (e. g. , loan or line of credit). Common Characteristics • Coverage matches the credit. That is, there is usually coverage for the exact term and amount of the loan. • The lender is the first beneficiary of the policy proceeds. • A single premium is paid at the inception of the insurance. The premium is financed with the loan. • The same premium rate is charged to every customer of a financial institution regardless of age, gender, and occupation. 2

Features & Benefits to the Borrower There are many reasons why your borrowers will want to enroll in the Payment Protection Plan. Here are just a few. More information about the advantages of the Payment Protection Plan are discussed in the Features & Benefits section of this manual. • The borrower has a sense of security knowing that his or her loan is covered in the event of a sudden accident or illness, or unexpected death. • The borrower only pays for what he or she needs. If the loan is paid off early, any unused premium is credited to the payoff amount. • Many borrowers are under-insured. They know this, but tend to avoid the task of purchasing more insurance. Since the Payment Protection Plan is an easy and convenient way to meet a portion of their insurance needs, many borrowers choose to enroll. 3

Features & Benefits (cont. ) Benefits to You Not only does your customer benefit, but you and your organization also benefit from the Payment Protection Plan. Here’s how: • If the customer suddenly becomes disabled or dies unexpectedly, you have the extra security knowing that the borrower has a way to repay the loan obligation. • Knowing the bank won’t have to call a widow, widower, or disabled borrower and collect on an unpaid balance increases your customer relations. • The Payment Protection Plan not only helps build customer relationships, but it also provides additional profit for your organization. 4

Plan Highlights Types of Insurance CREDIT LIFE v Single Premium v Single Coverage v Joint Coverage v Gross and Net Coverage GROSS AGE MAX AMOUNT TERM 18 - 55 $150, 000 120 MO. 56 - 65 $ 50, 000 120 MO. (maximum $100, 000 for all ages for Net) v Maximum Age at Issue 65 Age plus Term not to exceed Age 71 v No Occupational Limitation v CREDIT A&H v Single Premium v Single Coverage Only v Age Limits (18 -65) v Max Monthly Benefits 0 -60 Mo - $1, 000 61 -84 Mo - $ 500 v Max Term – 84 Mo. Term plus age not to exceed Age 66 v Must be employed (Minimum 30 hours a week) v Good Health Statement No Physical Examination No Health Statement for High Blood Pressure or Diabetes No Act of War (declared or undeclared) Exclusion No Flight in Non-Scheduled Aircraft Exclusion 5

Characteristics of Credit Insurance v Types of eligible loans: § Consumer loans § Commercial loans § Real Estate Loans § Agriculture loans § Balloon loans § Irregular loans 6

Characteristics of Credit Insurance v Applicant’s statement of insurability Coverage is not available to any applicant for credit life and credit disability insurance that is unable to certify the parameters of good health. For your customers we have eliminated any questions relating to high blood pressure and diabetes. All applicants for credit disability and credit involuntary unemployment insurance must also certify they are working for wages or profit for 30 hours or more per week on the effective date of coverage. v Rates and policy equipment Filed with and/or approved by the Texas Department of Insurance. For you and your customer’s benefit we have also eliminated war/act of war/military duty and non-schedule air travel as an exclusion. Suicide exclusion only for the first two years of the policy. v Beneficiary designation The creditor is the first beneficiary. If benefits exceed the amount necessary to pay off the debt, the excess is paid to a named second beneficiary. In the absence of second named beneficiary, the debtors estate becomes beneficiary. v Terminations and Refunds Coverage automatically terminates and the debtor is entitled to a refund of any unearned premiums in the event the loan is prepaid, renewed or refinanced prior to the scheduled date of maturity. 7

Credit Life – General Information What is Credit Life? Credit life insurance pays the insured’s covered loan balance in the event of his or her death. Single & Joint Coverage Credit life insurance can be offered to one borrower (single coverage) or to the borrower and his or her co-borrower (joint coverage). The policy terminates upon the death of either one of the insureds. If the two borrowers die simultaneously, then only one death benefit is paid. Advantage of Joint Coverage The opportunity for the borrower to purchase joint coverage is a great advantage because there is a substantial savings (approximately one-third) over the alternative of buying two single life policies. Borrowers do not have to be related to obtain joint life coverage. Types of Credit Life Coverage The most common types of life coverage include: • Gross pay • Net pay • Truncated • Level 8

Credit Life - Facts Know the Facts…Here are some facts that support the importance of credit life insurance. Did You Know. . . Ø 47 percent of all Americans have no life insurance. Ø 24 percent of all households have no life insurance. Ø 34 percent of all insurance bought is employee group coverage Ø Chronic illness is the leading cause of death in the U. S. It accounts for 3 out of 4 deaths and affects more than 100 million people. U. S. Department of Health & Human Services Fact Sheet, October 14, 1998. When tragic and sudden deaths occur, having Payment Protection to help pay off debt gives the grieving family one less thing to worry about. 9

Credit Disability – General Information Description Credit disability insurance pays a portion of the insured’s monthly loan payment for each day he or she is totally disabled. Disability may be a result of an accident or illness. Proceeds are payable as 1/30 th of the monthly payment for each day the insured is disabled. How Proceeds are Paid Example: Total monthly payment: $300. 00 # Days of disability: 45 Calculate proceeds/day: $300. 00/30 = $10. 00 Multiply daily proceeds by # days of disability: $10. 00 x 45 days = $450. 00 Total Disability Total disability is defined as any physician-documented accident or illness that, for the first 12 months, prevents the insured from working in their normal occupation. For any disability beyond the first 12 months, the insured cannot engage in any occupation for which he or she is reasonably qualified by education, training, or experience. 10

Credit Disability - Facts Know the Facts Here are some facts that support the importance of credit disability insurance. Did You Know. . . Ø Nearly 1 in 5 people will become disabled for 5 years or more before age 65. Federal Reserve Bulletin, 1997. Ø About 2. 9 million injuries and illnesses in 1997 were lost workday cases; that is, they required recuperation away from work or restricted duties at work, or both. Bureau of Labor Statistics, U. S. Department of Labor. Ø On the average, there are 11 unintentional-injury deaths and about 2, 370 disabling injuries every hour during the year. Ø While you make a 10 -minute safety speech, two persons will be killed and about 396 will suffer a disabling injury. Costs will amount to $8, 920, 000. Since no one knows when an accident can change their lives dramatically, isn’t it a good idea to have Payment Protection? 11

Waiting Period To qualify for disability benefits, the insured must be totally disabled for the number of continuous days specified by the waiting period in the policy, typically 14 or 30 days. Retroactive Plan With the retroactive plan, benefits are paid from the first day of disability once the waiting period is over. An example of how the 14 -day retroactive plan works is on the next page. 12

Waiting Period (cont. ) Example of 14 -Day Below is an example of a 14 -day retroactive waiting period for a disability. Retroactive Waiting Period The retroactive plan provides benefits that are payable from the first day of disability. Once the 14 th day of disability has passed, benefits become due and payable from the first day of disability and continue for each consecutive day of disability. Monthly disability benefit (monthly payment). . . . …. . . . . = $300 Daily benefit = $300/30. . . …. . . . . = $10 Benefit payable = 20 days of disability x $10. . . …. . . . . = $200 13

The Presentation 100% Presentation Presenting the Payment Protection Plan should be as natural as selling a loan. Here a few suggestions for making the Payment Protection Plan a natural tie-in to your loan sales presentation. Ask Permission to Ask Questions When a customer calls or stops by and requests a loan quote, ask the customer the following question: “May I ask you a few questions first? ” If the customer says, “yes, ” follow up with the next question: Determine the Range of Monthly Payments “What range of monthly payments are you looking for? ” Quote the Loan Payment Always quote the loan payment to include the Payment Protection Plan. Disclose the cost of the plan to the customer up front. “Mr. /Ms. Customer, your monthly payment would be $_______, which includes the principal, interest, (other fees) and also about $____ for the optional Payment Protection Plan. How does that sound? ” Questions After you quote the payment, your customer may have questions about the plan. The following information will help you answer these questions. 14

The Presentation (cont. ) What is it? You would say: “Here’s what the plan covers: If you become disabled as a result of an accident or illness, our loan payments will be made for the time you cannot work. If you die unexpectedly, your covered loan balance is paid. A definition of the terms and a full description of the coverages are included in the Certificate of Insurance you would receive. ” Does it Affect my Loan Approval? Your response would be: “Your decision to enroll in the plan does not affect your loan a approval or the processing time. This is a voluntary plan we offer as a convenient way to protect your new loan. ” 15

The Presentation (cont. ) Enrollment Guidelines • Even if your customers do not ask these questions, it’s important that you let them know: • How much the Payment Protection Plan costs. • It’s an optional plan. • Their decision whether to enroll does not affect their loan approval or the loan processing time. Payment Protection is very rarely asked for, you must offer Payment Protection 100% of the time to every eligible customer. 16

The Presentation (cont. ) More Tips Here are some more tips that will help you present Payment Protection Plan to EVERY customer. Nothing Convinces More Than Conviction Some lenders feel uncomfortable offering the Payment Protection Plan to every customer. To alleviate this feeling, it’s helpful to understand what it is that the Payment Protection Plan does for the customer (refer to Features & Benefits). This understanding, along with quoting the payment with Payment Protection Plan EVERY time, will greatly diminish this feeling of discomfort. Determine Eligibility Early On Determine the customer’s eligibility as early on in the loan process as possible. If your customer likes it, get the health questionnaire out and say, “Great, let’s see if you qualify. ” Then ask your customer to complete the health questionnaire. You can ask customers to complete the health questionnaire at the same time they are completing the loan application. Ensure Borrower and Co-Borrower Answer Health Questions At no time should the health questions be answered by anyone other than the borrower and co-borrower. If the borrower and co-borrower are unable to complete the health questions and sign the Application for Credit Insurance form, do not issue insurance. By quoting the Payment Protection Plan in every payment, you have an automatic way to tell every customer about it. Quote Payment Protection Plan With Every Loan Quotation By quoting the Payment Protection Plan in every payment, you have an automatic way to tell every Customer about it. 17

Questions & Answers These are general questions that your customers may have about the Payment Protection Plan. If I decide later that I want the insurance, may I enroll at that time? You may only enroll in the Payment Protection Plan at the time you are obtaining your loan. But remember, your satisfaction is guaranteed. If you enroll today and later change your mind, you cancel for a full refund of the unearned premium. This premium will be applied to your principal, and your loan payments will not change. I have irregular installments. May I still enroll in the plan? Yes. The disability benefits would be calculated by dividing the total net indebtedness (principal, insurance premiums, and fees) by the number of months in the loan term. For example, if your total indebtedness is $20, 000 for a 48 -month term, your monthly benefit would be $416. 66. (This is an example of net coverage. ) 18

Questions & Answers What if I have other insurance plans? Will they affect the benefits I may receive from this plan? The Payment Protection Plan is designed to protect this particular debt for a specific term. The benefits you may receive from this plan are not affected by your other coverages. What if I have military duty? Will I be covered during that time? Yes. The Payment Protection Plan has no occupational limitations which means any occupation is covered by this plan and that includes military service. What if I miss some loan payments and then I die? Is the entire debt paid off? The insurance coverage continues to decrease as if you were making your loan payments on time. Any delinquent payments past 60 days will not be covered. What if I become permanently disabled? Will this plan make my payments until the debt is paid off? Yes, as long as your payments are up to date at the time you become disabled and you purchased coverage for the full term of the loan. 19

Objections No matter how well your initial introduction may go, there are times when the customer is simply going to say “No”. An objection is usually a result of: • Lack of Information. • Discomfort with the method used in presenting the product. • Previous experience. Knowing this you can avoid these stumbling blocks by: • Presenting the product in a manner that is natural and confident. • Listening carefully to identify your customers concerns. 20

Objections (cont. ) There are only a few basic objections that you will hear over and over, customers may find different ways to state the objection, but they are all basically saying the same thing. Here are some of the objections you may encounter and some workable responses. Objections Listen Empathy Share “I have plenty of insurance. ” / I already have insurance. “Some of our customers have felt the same way, however they found that their existing insurance was not enough to protect their New Obligation. ” Clarify “When you purchase that insurance was it for a specific purpose? ” Present “The payment protection plan was not designed to replace other insurance, but to supplement your insurance program. Your existing insurance could then be used for the initial reason you purchased it. ” Close “Do you agree this protection is something you should consider? ” 21

Objections (cont. ) Objections Listen Empathy Share “I can’t afford it. ” “I can appreciate how you feel, however by financing the premiums as part of the loan, it makes it cost effective for the protection it provides. ” Present “With the payment protection plan your family would inherit an asset, not a debt. ” Close “Do you think it is something you should consider? ” 22

Objections (cont. ) Objections “I plan on paying back this loan early. ” Listen Empathy Share “A lot of our customers do. ” Clarify “When do you plan to pay your loan off. ” Present “The payment protection plan is specifically designed for early payoff. You only pay for what you use. If the loan is paid off early, you will receive a refund of the portion of the protection plan that you did not use. ” Close “Doesn’t that make the protection plan fit your needs? ” 23

Objections (cont. ) Objections Listen Empathy Share “I can get it cheaper from my agent. ” “Some of our customers have felt the same way, however after contacting their agent they found that their agent would not or could not provide for the amounts of protection that fit either the dollar amount or term of the loan. Clarify “May I ask, have you contacted your agent for this additional protection for this new obligation? ” Present “You will find our payment protection plan not only more convenient from underwriting requirements but because it’s group plan, more economically can be financed as part of your loan. ” and Close “Can you see how much more the payment protection fits your needs? ” 24

Objections (cont. ) Objections Listen Empathy Share “I don’t need it. ” “Some of customers initially felt that way. However after carefully considering the possible hardships their family could face without this protection, they found they needed it” Clarify “Have you considered the repayment of this new obligation if something were to happen to you. ” Present “If something did happen to you, your family could lose their credit rating and (whatever item they are financing) including any payments you made and down payment. ” your Close “Would you agree it’s worth investing $____ a day to protect $_______ and your family’s financial future? ” 25

Objections (cont. ) Objections Listen Empathy Share Present & Close “No, I’m not interested. ” “So there is no misunderstandings, may I ask what specific concerns you have about this program? ” “Uncover their true objections and present benefits to outweigh the specific objection given. 26

Glossary of Terms A&H stands for accident and health. Credit disability insurance is also called Credit A&H. Claimant A borrower who is covered by a credit insurance policy and who files a claim for a loss that is covered by the policy. Closed-End Loan A loan that is for a specified amount and a fixed term. The amount that is borrowed cannot be increased. Effective Date The date the insurance coverage begins. It is usually the effective date of the loan. Gross Pay Life Coverage Gross pay life (a. k. a. , gross note, straight line decreasing, total of payments) coverage is credit life coverage that covers the total of loan payments. That is, principal, interest, insurance premium, and other loan-related fees. Group Policy A credit insurance policy that is issued to a lender, where the group is defined as the consumers who obtain loans from that lender. When a borrower enrolls, he or she is enrolled in the group policy and receives a certificate of insurance that shows evidence of insurance. Installment Loan A loan that is generally repayable in equal monthly payments. 27

Glossary of Terms (cont. ) Joint Credit Life Credit life insurance that insures the borrower and the co-borrower. Level Term Life Coverage Level term life coverage provides a level and constant amount of insurance throughout the entire term of the loan. This type of coverage may be written to include the principal, fees, insurance premium, and the interest or any portion of the total note. Level coverage is typically written when there are irregular payments an/or balloon notes. Most states do not permit level coverage to be written on closed-end installment loans. Line of Credit A borrowing limit that has been pre-approved by the lender. Monthly outstanding balance coverage (MOB) is generally written on lines of credit. (See also: open-end loan. ) Monthly Outstanding Balance Coverage (MOB) A credit life and disability benefit that pays the outstanding balance of the loan (or line of credit) on the date of death and pays the minimum monthly payment in the event of disability. Monthly premiums (usually an amount per $100 or $1, 000 per month of the outstanding balance) are charged for the insurance. This type of coverage is usually offered on lines of credit and open-end loans. Net Pay Life Coverage Net pay (a. k. a. , net payoff and net decreasing) coverage is credit life coverage that covers the net balance of the loan. That is, principal, insurance premium, and other loan-related fees but not the unearned interest. If the insured dies, the insurance benefit should be equal to the net loan balance that is due to the creditor. This type of coverage follows a specific amortization schedule for the term of the loan. 28

Glossary of Terms (cont. ) Open-End Loan A loan which may increase in amount at any time. The term of the loan is not fixed. The borrower makes monthly payments for any amount from the lender’s required minimum payment up to the outstanding balance of the loan. (See also: line of credit. ) Penetration Rate A rate that reflects the percentage of eligible borrowers who enroll in credit insurance. Preexisting Condition A condition for which the insured has been treated and/or diagnosed by a physician prior to the effective date of the insurance policy. Premium The amount paid for the specified insurance coverage. Retroactive Waiting Period A type of waiting period in which an insured must wait the specified number of days before receiving benefits. Once that waiting period is over, benefits are payable back to the first day of loss. Single Premium A premium that is charged only once at the inception of the insurance coverage. Six-by-Six Preexisting Condition A preexisting condition exclusion for disabilities. A disability is not covered if the insured becomes disabled from a preexisting condition within six months after the effective date if any treatment and/or diagnosis for that preexisting condition occurred within six months prior to the effective date. 29

Glossary of Terms (cont. ) Principal (As in “loan principal. ”) The cash that is advanced to the borrower or the part of the product’s purchase price that is being financed. Other portions of the loan may include interest and other fees. Truncated Coverage Truncated life coverage is written to insure the first portion of the loan. It covers the net balance of the loan. That is, principal, insurance premium, and other loan-related fees but not the unearned interest. This type of coverage follows a specific amortization schedule for the term of the loan. Truncated coverage means partial coverage. 30

Consumer Bill of Rights v The Bill of Rights is a summary of the consumers rights and does not become part of the policy. v Texas and federal law give the consumer certain rights regarding credit life, credit accident and health (disability) and involuntary unemployment insurance. v Also provides a toll-free telephone number to the Texas Department of Insurance. v Provides the consumer with information on enforcing their rights. Consumer Notification v You must inform a prospective consumer of credit insurance related products that the purchase of coverage is not a condition of the extension of credit, and the coverage may be purchased form an agent other than the lender or affiliate of the lender. 31

The insured must be provided with a copy of the following with each new policy or certificate issued! IMPORTANT NOTICE REQUIREMENT Outlines procedures for obtaining information and filing complaints. v. Provided in both English and Spanish. v. Provides toll-free numbers and mailing address for insurers, the Texas Department of Insurance and mailing addresses. v. Outlines procedures for obtaining information for resolving claim disputes and filing complaints. 32