It used to be so simple: You used your bank for checking and savings accounts and loans, and you bought insurance from an insurance agent or company. But things are changing. If it doesn't already, chances are your bank will soon be selling insurance. And what's more, your insurer may be offering banking products.
As the lines that once divided financial services providers blur and even disappear, the concept of one-stop shopping may sound extremely appealing. But don't let convenience replace sound decision-making.
When it comes to banks selling insurance, one important thing to keep in mind is that your decision to buy or not buy coverage from your bank can't affect your credit standing with the bank, says Jeffrey A. Myers, assistant vice president of public affairs for the Independent Insurance Agents of America. Federal statutes prohibit tie-in arrangements between banking and nonbanking products, and many states also have similar regulations.
"When you go into a bank and are solicited for nonbanking products such as insurance, you can say no without any repercussions," Myers says. "You aren't required to buy an insurance product from a bank just because you have a loan or a line of credit pending. You have the option to walk away and know that it's not going to endanger your relationship with the bank."
Of course, that's not to say that buying insurance from your bank is always a bad idea. Myers advises evaluating the coverage and costs, and doing some comparison-shopping just as you would with any insurance product.
Some points to keep in mind about banks as sources of insurance: They're not insurers; they have a relationship with an insurance company and are essentially acting as brokers. In addition, a bank typically has a relationship with only one insurance provider and may therefore have limited offerings. Finally, remember that insurance and other nonbanking products aren't protected by the Federal Deposit Insurance Corp. (FDIC), even though they may be sold through an FDIC-insured institution. Only depository accounts are covered by the FDIC.
If you think the financial services marketplace is confusing now, it's likely to become even more so in the future. At press time, financial modernization legislation was working its way through Congress; Myers says the bill would "allow banks, insurance agencies, insurance companies and securities companies to get into each other's business." That would mean more competition, more choices--and more work for entrepreneurs to make the best decisions.