Pity the poor life insurance industry. Not only is the North American market for its product shrinking fast, but ultra-low interest rates are eating away at the investment returns that it depends upon for the income to keep itself afloat.

In light of this new reality, one major U.S. life insurer is partnering with a well-known retail giant to peddle a new product that is a marvel of simplicity: the prepaid life insurance policy.

Insurance meets the prepaid financial product sector
MetLife (NYSE:MET) has launched a new pre-packaged life insurance product in conjunction with big-box behemoth Walmart (NYSE:WMT) in order to market its policies to the retailer's customer base. Not only does the new sales program expand the insurer's reach, but it reduces costs associated with marketing life insurance through brokers. The policies offer one year of coverage, with a value cap of $25,000.

While this concept is fairly new, MetLife is not the first insurer to sell insurance policies through a major retailer. Canadian insurer Manulife (NYSE:MFC) currently offers term life insurance to Canadian citizens through U.S.-based Costco (NASDAQ:COST), which, like Walmart, offers an array of financial products to its customers -- including mortgages.

MetLife's struggles
Like all life insurers, MetLife has had a rough road to travel for the past few years. The company, as well as fellow insurance providers such as Prudential, Sun Life Financial, and Manulife have all cut back on products sold in the U.S. and Canada. Indeed, Moody's just recently trimmed its outlook for the U.S.life insurance industry from stable to negative, citing the low interest rate environment as the prime reason for the sector's continuing downward earnings spiral.

MetLife has had a particularly hard time of it, as its banking arm put the insurer squarely in regulators' sights. The company has been stymied in its desire to increase dividends and buy back stock because of capital requirements imposed by the government. 

Its efforts to sell its banking section to General Electric (NYSE:GE) to avoid such scrutiny has been an ongoing problem, as regulators from the Federal Deposit Insurance Corporation have continually postponed a decision on the matter. More recently, the terms of the sale were changed to name GE Capital Retail Bank as the recipient of MetLife's deposits, rather than GE Capital Bank, an adjustment that will negate the need for the FDIC's involvement.

One Fool's take
Despite its myriad problems, MetLife is taking the initiative to bolster its bottom line. Although the deal with Walmart has just begun, targeting the less wealthy with tailored financial products has been lucrative, as the prepaid debit card industry has shown. Offering its product through Walmart, with its heavy foot traffic, should expand MetLife's customer base quickly, and by a wide margin.

As the venerable insurer sheds its banking branch and concentrates on rebuilding its core insurance business, creative marketing ideas like this one should help the company weather the current economic doldrums with a healthier balance sheet -- as well as a heftier dividend for its long-suffering investors.

Fool contributor Amanda Alix has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale and General Electric Company. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days.

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