Debt Protection Products explains the origin and evolution of these lending products and serves as a practical guide to aid lenders in the design, construction, and on-going management of debt protection product programs. This book is written with the lender in mind, but administrators, regulators, insurers, and others who are interested in these lending products will benefit from studying this book.
For designing debt protection products, the best analogy is a kaleidoscope. Most of us remember from our childhood this simple toy that consists of an eyehole on one end, an empty cylinder, three mirrors, a few pieces of plastic, and a revolving chamber on the other end.
Each turn of the kaleidoscope created a new image from those mirrors and the positions of those few pieces of plastic. The outcome of each turn was a unique mosaic created from countless possibilities.
For debt protection products, each turn produces a unique product from infinite possibilities. Each unique debt protection product emerges from the combination of the “pieces”— protected events, benefit options, fee rate bases, contractual limitations, and exclusions— that are selected. Products are combined into packages of protection, which, together with marketing methods, administration processes, and risk management options, form a unique debt protection product program.
This book presents the basic building blocks of product design, addendum drafting, product pricing, program management, and risk management. It then turns the debt protection product kaleidoscope to apply these basic concepts to each lending category.
Exploration of the power of debt protection products has just begun. As more lenders understand this power, the concept will grow far beyond current uses. Join us on the journey to expand the concept of debt protection products and to create the future.