Free Life Insurance: Banks' Offerings And Their Caveats

Banks do not generally offer free life insurance to their customers, but life insurance is available to buy through most banks. Banks often sell simple term life insurance, decreasing mortgage life insurance, and funeral plans, which can provide a lump sum of cash to pay for expenses and bills after someone dies. Some banks also include critical illness insurance and income protection cover in their product selections. However, these insurance products are rarely the best or the cheapest on the market, and it is always worth shopping around.

Banks do, however, offer their employees life insurance, known as bank-owned life insurance (BOLI). This is a tax-free or tax-deferred permanent life insurance policy purchased by banks for their top-tier employees and board members. The bank owns the policy, is named as the sole beneficiary, and benefits from the tax advantages.

Banks don't offer free life insurance to customers, but it can be purchased through them

Banks do not generally offer free life insurance to their customers. However, life insurance is available to buy through most banks. 'Packaged' bank accounts that usually attract a monthly fee sometimes include general insurance such as travel, mobile phone, and breakdown insurance, but they rarely include life insurance.

Some financial products, including bank accounts, may include free accidental death cover, which is often confused with life insurance. Accidental death insurance only pays out if death is caused by an accident, and a claim would have to stand up to scrutiny as to whether the death was directly and completely caused by an accident. On the other hand, life insurance generally pays out for death that occurs due to an accident, illness, or natural causes. It is rare that life insurance excludes death caused by any specific means except for suicide, which is commonly excluded from claims in the first year or so of a life insurance policy. So, even suicide is covered by life insurance after this initial exclusion period.

While you can't get life insurance as a free benefit with your bank account, most banks do sell life insurance products to their customers. These include simple term life insurance, decreasing mortgage life insurance, and funeral plans, which can provide a lump sum of cash to pay for expenses and bills that require settling after someone dies. Some banks include critical illness insurance and income protection cover in their product selections, too.

You will find that most banks' life insurance products are provided by a trusted third-party insurer, such as Scottish Widows or Legal & General. It is the life insurance company that will underwrite and administer the policy and ultimately be responsible for paying out a claim.

Banks rarely sell the best life insurance policies or offer the cheapest monthly payments. This is partly because their products don't appear on comparison sites, where they would be in direct competition with similar insurances through other providers. While researching life insurance products offered by many well-known high-street banks, it was found that you could get a cheaper and better-quality version of the policy if you went directly to the life insurance company.

How to Buy the Best Life Insurance

Regardless of your reasons for buying life insurance, the quality and cost of the policy will matter hugely. On the face of it, it can seem as though all life insurance policies are equal, but there are differences in the terms and conditions, and it isn't always clear how this may or may not suit your personal circumstances. Through extensive research and vast experience working within life insurance businesses, it can be said that it is best to buy life insurance through a specialist life insurance adviser.

Often, your personal details, such as your past and current health, as well as what you do for a living or your hobbies, can change the terms and/or the price of a life insurance policy. Specialist life insurance advisers can pre-empt this and search the whole market for the life cover that best suits you and your budget.

Choosing the right amount and type of life cover to meet your needs is important, and a specialist adviser will talk through the factors that will drive this and how you can tailor the cover so you're not paying more than you need to. They'll also provide you with guidance about how to nominate who you want the money to reach and explain ways to ensure that if there's a claim, the money can reach them tax-free.

You don't pay for the specialist life insurance adviser's service, only the monthly payment for your life insurance if you decide to buy it.

'Packaged' bank accounts sometimes include general insurance, but rarely life insurance

Packaged bank accounts are a type of bank account that charges a monthly fee and provides account holders with a range of benefits, including insurance services. While the specific benefits vary depending on the bank and the type of packaged account, these accounts typically include phone, travel, and breakdown insurance cover. Some more expensive packaged accounts may also offer airport lounge access, lifestyle perks such as restaurant discounts, and even home emergency cover.

It is important to note that packaged bank accounts rarely include life insurance. However, they may sometimes offer accidental death cover, which is distinct from life insurance. Accidental death insurance only pays out if the death is caused by an accident, and the claim must meet strict criteria to be successful. In contrast, life insurance generally covers death due to accidents, illnesses, or natural causes, with suicide being the most common exclusion, and even this is usually only for the first year or so of the policy.

When considering a packaged bank account, it is essential to carefully review the terms and conditions of the services included. This includes checking for any excess payments required when making a claim on insurance policies. Additionally, individuals should assess whether they truly need the insurance provided and if they could get a better deal by purchasing insurance separately. For example, if an individual does not own a car or a smartphone, they may not fully benefit from the breakdown or phone insurance offered in a packaged account.

While packaged bank accounts may not include life insurance, banks do sell life insurance products to their customers. These can include simple term life insurance, decreasing mortgage life insurance, and funeral plans. However, it is recommended to shop around and consider purchasing life insurance through a specialist life insurance adviser or directly from a life insurance company, as banks rarely offer the best policies or the most competitive monthly payments.

Accidental death cover is not life insurance, but is sometimes offered for free

Accidental death cover is not life insurance, but it is sometimes offered for free. Many banks and credit unions offer $1,000 worth of accidental death and dismemberment coverage for free to their customers. However, this is often used as a marketing strategy to upsell customers to more expensive coverage plans. For example, after offering $1,000 worth of free coverage, banks may then offer customers the chance to upgrade to as much as $300,000 worth of coverage for only about $10 a month.

Accidental death and dismemberment insurance is very different from other life insurance policies. It only pays out if the death or injury is caused by an accident and not due to illness or disease. It also often excludes deaths due to high-risk activities such as skydiving or car racing, as well as deaths caused by other circumstances, including drunken or drug-impaired driving.

Life insurance, on the other hand, covers most causes of death, including death due to illness or disease. It also typically pays out a death benefit regardless of how the insured person dies (depending on insurer-specific restrictions). Therefore, life insurance is generally considered a smarter purchase if you have people who rely on you financially. Accidental death and dismemberment insurance could be a good supplemental life insurance policy, especially if you can get it for free through your bank or employer.

Banks sell life insurance products, but rarely the best policies or cheapest monthly payments

Banks sell life insurance products to their customers, but rarely do these policies offer the best coverage or the cheapest monthly payments. This is because banks are not in the business of providing insurance—their primary goal is to make money by selling financial products. As a result, the life insurance policies they offer are often not the most competitive in the market.

When banks sell life insurance, they are engaging in a practice known as "hard-selling," where they aggressively market their products to customers, often without providing full disclosure of the terms and conditions. In the case of life insurance, banks may offer a small amount of free coverage, such as accidental death and dismemberment insurance, as a way to lure customers into purchasing more expensive policies. These free policies are typically worth very little, and the chances of making a claim on them are slim.

The primary motivation for banks to sell life insurance is to generate profit. They achieve this by collecting juicy commissions on the policies they sell and using the proceeds to fund their own employee benefit plans. This practice, known as "bank-owned life insurance" or BOLI, allows banks to benefit from tax-free savings and use the money to offset the costs of their employee benefits packages. However, BOLI is not available to all bank employees, only those considered "key players" whose death could cause a financial loss for the bank.

While BOLI can provide some benefits to banks and their employees, it is important to remember that the primary purpose of these policies is to protect the bank's interests, not those of the insured or their beneficiaries. As a result, customers who purchase life insurance through their bank may find themselves paying more for less comprehensive coverage than they would if they had purchased a policy from a dedicated insurance provider.

To ensure they are getting the best value for their money, customers should do their research and compare policies from multiple providers before committing to a life insurance plan. By understanding their own needs and shopping around, individuals can avoid being pressured into buying a policy that may not offer the level of protection they truly need.

Banks buy life insurance for key employees and board members

Banks do not offer free life insurance to their customers. However, they do offer "free" accidental death and dismemberment insurance, which is used as a marketing strategy to sell more profitable insurance products.

Banks do, however, buy life insurance for key employees and board members. This is known as Bank-Owned Life Insurance (BOLI). BOLI is a type of life insurance that benefits the bank, not the insured or their beneficiaries. The bank is the policy beneficiary and owner, and the insurance is used as a tax shelter and a way to fund employee benefits. Banks are only allowed to purchase BOLI policies for employees for whom there is an "insurable interest", meaning the bank would suffer financially if the employee dies. This typically includes highly paid employees or the top 25% of staff. The insured employee must also agree to the policy.

BOLI offers banks a way to fund benefit plans for their employees. The premiums paid into the fund and all capital appreciation are tax-free for the bank, allowing them to fund employee benefits on a tax-free basis. The policy is often purchased for high-earners and/or board members, and the benefits are paid out to the bank after the insured individual's death. Even if a covered employee leaves or is terminated, the policy remains in place, allowing the bank to continue funding employee benefits.

There are a few potential downsides to BOLI. If a bank surrenders a policy because they can't keep up with the premiums, the policy will be taxed, and there is a 10% penalty on any gains. Additionally, the credit quality of the BOLI insurance carrier's credit rating is essential. If a bank purchases a policy from a company with a poor credit rating, it exposes itself to risk, especially if it is not a single-premium policy.

Frequently asked questions