Credit Union Life Insurance

As a financial advisor who has spent decades helping people make smart decisions with their money, I’m often asked about various insurance and investment offers that seem too good to be true. One common question I get is whether life insurance offered through credit unions is actually a good deal.

Let’s dive into this topic and examine whether credit union life insurance makes sense, or if there are better options available.

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The Allure of Credit Union Life Insurance

Credit unions have a reputation for offering member-friendly financial products, so it’s natural to assume their life insurance offerings would be a good value. Many credit union members receive mailers advertising seemingly attractive life insurance policies, often with simplified underwriting and competitive rates.

These offers can be tempting, especially if you’re already a satisfied credit union member. The policies are presented as an exclusive perk, coming from a trusted source. Some even allow you to skip the medical exam and go through an expedited underwriting process.

But as we’ll see, the reality is that credit union life insurance often falls short when compared to policies available on the open market.

Comparing Credit Union vs. Open Market Term Life Insurance

To illustrate this point, let’s look at a real-world example. We recently analyzed a credit union term life insurance offer that came across our desk. Here’s how it stacked up against comparable policies we can offer through other carriers:

Credit Union Offer:

$100,000 death benefit
5-year term
Female age 25-29
$25.50 per month

Our Alternative:

$100,000 death benefit
10-year level term
Female age 25-29
$10.38 per month

As you can see, the open market policy provides double the term length for less than half the monthly premium. Even more remarkably, we can offer a 30-year term policy to this same individual for just $16.18 per month – still significantly less than the credit union’s 5-year rate.

The gap is even wider for male applicants. The credit union charges $42.50 per month for their 5-year term, while we can offer a 10-year policy for just $11.24 monthly.

Why Such a Big Difference?

You might be wondering how there can be such a disparity in pricing. There are a few key reasons:

Limited underwriting: Credit unions often use simplified issue policies with less stringent health screening. This means they have to charge higher rates to account for potentially riskier applicants.
Inefficient distribution: Credit unions typically partner with insurance companies or marketing groups rather than selling policies directly. This adds cost to the process.
Lack of specialization: Insurance isn’t a credit union’s primary business, so they lack the expertise to source the most competitive products.
Profit motives: Some credit unions may view insurance as a way to generate additional revenue from their membership base.

The Whole Life Insurance Gap

The pricing discrepancy isn’t limited to term life insurance. We also analyzed a credit union whole life insurance offer and found similar results:

Credit Union Offer:

$20,000 death benefit
$104.60 per month (after $1 first month)

Our Alternative:

$25,000 death benefit
$88.83 per month

Once again, we’re able to offer more coverage at a lower price point. But the issues with the credit union’s whole life policy go beyond just the premium.

Upon further analysis, we found that a policyholder would likely pay more in premiums than they’d receive in death benefit unless they passed away by age 80. This makes it a poor value proposition for most buyers.

The credit union policy lacked important features like a paid-up additions rider, which can significantly boost the policy’s cash value growth and overall performance.

When Credit Union Life Insurance Might Make Sense

While credit union life insurance is often overpriced, there are a few scenarios where it could potentially be worthwhile:

You have serious health issues: If you’ve been declined for traditional life insurance due to medical conditions, a simplified issue credit union policy could provide needed coverage.
You need a very small amount of coverage: For burial insurance or other minor needs, a credit union policy might suffice.
You value extreme convenience: If you prioritize an ultra-simple buying process over cost, credit union insurance removes some friction.

However, for most people in reasonably good health, shopping the open market will yield far better results.

Beyond Insurance: Putting Your Money to Work

As we’ve seen, blindly accepting a credit union insurance offer is rarely the optimal financial move. This example highlights a broader principle that’s critical for building long-term wealth: you need to think carefully about how to put your money to work.

Too many people passively accept whatever financial products are marketed to them, whether it’s overpriced insurance, low-yield savings accounts, or mediocre investment options. But to truly get ahead, you need to take an active role in managing your money.

Here are some key principles for putting your money to work effectively:

Understand what money really is: At its core, money is a medium of exchange and a store of value. It should be fungible, durable, portable, recognizable, and relatively stable. Keeping this in mind helps you avoid chasing after speculative investments that don’t fulfill money’s core functions.
Focus on value creation: The wealthiest individuals understand that sustainable wealth comes from providing value to others, not from chasing money for its own sake. Look for ways to increase your service and contribute meaningfully to society.
Think in percentages: Small savings and optimizations add up over time. As the old saying goes, “watch the pennies and the dollars will take care of themselves.”
Invest in what you understand: Never put money into investments or financial products you don’t fully grasp. Lack of knowledge is how people end up losing money or missing out on better opportunities.
Beware of opportunity costs: Sometimes chasing small savings (like extreme coupon clipping) can cost you more in time and energy than it’s worth. Consider the big picture.
Teach financial literacy: If you have children, instilling proper money habits early is one of the greatest gifts you can give them. Avoid handouts and allowances, and instead create opportunities for them to earn and manage money.
Understand the role of interest: Interest is the wage that money earns. While excessive interest (usury) should be avoided, reasonable interest is a powerful tool for growing wealth over time.
Prioritize financing over investing: Many people’s need for efficient financing in their lives is much greater than their need to earn investment returns. Focus on reducing interest costs and recovering capital before chasing yields.

The Power of Infinite Banking

This brings me to one of my favorite financial strategies – one that exemplifies many of the principles we’ve discussed. It’s called the Infinite Banking Concept, and it leverages specially-designed whole life insurance policies to give you more control over your money.

Here’s how it works in a nutshell:

You overfund a high cash value whole life insurance policy.
The policy grows tax-deferred and provides a death benefit.
You can borrow against the cash value at favorable rates.
When you borrow, your policy continues growing as if you hadn’t touched the money.
You use policy loans to finance major purchases, investments, or business needs.
By paying yourself back with interest, you recapture the banking function in your own life.

This strategy allows you to:

Build a stable asset that grows predictably over time
Access liquid capital without relying on banks or credit cards
Potentially recapture interest you’d otherwise pay to lenders
Create a tax-advantaged legacy for your heirs

While Infinite Banking isn’t right for everyone, it’s a powerful example of how thinking creatively about your finances can unlock opportunities the average person misses.

Be an Active Manager of Your Money

The key takeaway here is that to build real wealth, you need to take an active role in managing your money. Don’t simply accept the financial products marketed to you by banks, credit unions, or other institutions. Do your research, understand your options, and choose the strategies that align with your goals.

Whether it’s shopping for the most cost-effective life insurance, optimizing your savings and investments, or exploring advanced concepts like Infinite Banking, there are always opportunities to improve your financial position. But you have to be willing to look beyond the surface and think critically.

Remember, no one cares more about your financial success than you do. So take control, educate yourself, and put your money to work in the most effective way possible. Your future self will thank you. Schedule a strategy session with us today.

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