Financial services to take another swipe

Don’t count them out yet.

Big banks, credit unions and other financial services players lost a crucial vote in the Senate last week to delay new Federal Reserve rules to limit how much they can charge merchants who accept debit cards — a move that would have saved them billions of dollars. But they vow to fight on.

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“We’re not going to walk away with our tail between our legs when a majority of the Senate has spoken loud and clear that they want to slow this thing down. I can’t speak to our next steps at this point. But I can guarantee that when consumers start getting hit with higher fees, thanks to Washington, the Beltway had better brace itself for the react,” said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents banks, credit unions and payment networks such as Visa and MasterCard.

After months of intense lobbying, the financial services industry saw its best hope fade on the Senate floor last Wednesday when an amendment by Sen. Jon Tester (D-Mont.) to delay Fed rules to cap so-called swipe fees died on a 54-45 vote. It needed 60 votes.

Now the financial services industry is assessing the post-Tester world and waiting to see what the Fed’s final rules look like. The draft proposal would cap swipe fees at 12 cents per transaction, down about 70 percent — a cut that would cost the industry an estimated $12 billion a year.

But at this point, insiders say, there’s not much the industry can do except explain to the Fed how the rules will affect them. Or as one banking lobbyist put it, “talk to them, beg and plead, ask for mercy.”

Another financial services lobbyist said he believes the issue has little legislative future because the House is loath to take up a politically volatile issue the Senate has already rejected.

“We’ve done what we could. We tried to get the Congress to intervene, and the Congress has spoken,” the lobbyist said, adding that there’s not much left for the industry to do “except pray.”

After last week’s vote, Sen. Bob Corker (R-Tenn.), who co-authored the amendment with Tester, indicated that the measure is unlikely to be revived soon.

“I got other fish to fry, and we pretty well cooked this one,” he said.

The National Association of Federal Credit Unions, which represents 800 federal credit unions, sent a letter last week to Fed Chairman Ben Bernanke. And on Monday, the association wrote to President Barack Obama, asking him to weigh in, arguing that the Fed’s “proposed rule is a recipe for disaster.”

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Mortgage Life Insurance is More Expensive

You often see an offer for mortgage life insurance when you sign your mortgage paperwork. In fact, you may have to sign several forms if you choose not to purchase it. The main reason lenders stress the importance of mortgage insurance at signing is because it benefits the lender by ensuring the loan is paid should you pass away. Mortgage insurance would pay off the mortgage entirely if you die. In some cases, mortgage insurance is the best choice. In most cases, however, a normal term life insurance policy will provide the same protection at a lower cost.

Mortgage Life Insurance is More Expensive

At the onset of the policy, the premiums you pay for a mortgage life insurance might be similar to the premiums you would pay for a term life insurance policy. As time goes on, however, your mortgage premiums will remain the same while the payout amount will decrease. This is how mortgage life insurance companies can afford to charge the same rates as term life without requiring a medical exam. However, this means that the premium to benefit ratio for term life insurance is much less. Since a mortgage insurance policy only pays for your mortgage, the amount that it will pay out decreases as you continue to make mortgage payments.

Term Life Insurance Offers More Flexibility

Aside from cost, one of the biggest differences between a traditional term life policy and a mortgage life policy is that mortgage insurance offers your dependents no control over the benefits. The insurance company pays the bank holding the mortgage directly. The benefit to your heirs is that the policy pays off the house and lifts the burden of ongoing mortgage payments. If your dependents aren’t interested in holding onto the house, however, this type of insurance isn’t much help. Your dependents will still have to sell the house to gain the economic benefit. A term life insurance policy allows the beneficiaries to spend the money in any way they desire.

Choose Mortgage Life When you Can’t Qualify for Term Life

The best time to choose mortgage life insurance over term life insurance is when you are unable to qualify for a traditional term life policy because of poor health. Mortgage life insurance does not require you to pass a physical or a blood test, so people in ill health generally find better rates with mortgage coverage. If you are unable to purchase traditional term life insurance, mortgage life insurance is an option that will provide at least some financial protection for your dependents.

However, if you can qualify for a term life policy you will receive a higher payout for a lower cost. Term life payouts go directly to your listed beneficiaries so that they can make decisions about how to use the money. Term life is typically a better choice than mortgage life because it makes better financial sense for you and for your dependents.

That doesn’t mean you should run out and buy a term life insurance policy right now for the value of your mortgage. It will depend on your situation. Could you continue paying the mortgage if your spouse passed away? Could your spouse pay if you died? If not, then you should be thinking about life insurance. However, if each of you can afford the mortgage payments individually, and you have little debt, you may not need life insurance at all.

Jessica Bosari is a freelance writer and blogger for TermLifeInsuranceNews.com. The site takes a common sense approach to life insurance, helping consumers make smart choices and save money through life insurance comparisons.

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