UPDATE 2-Principal Financial applies for federal loan

(Adds detail on Protective Life)

NEW YORK, Nov 18 (Reuters) - Principal Financial Group Inc said on Tuesday it had applied to take part in a federal lending program for financial services firms.

The provider of retirement products, life and health insurance said it expected to be able to borrow up to $2 billion, if approved for the program.

Principal joins several other U.S. life insurers, and Dutch insurer Aegon NV -- on behalf of its U.S. unit Transamerica -- to have applied for government funding as part of the United States' $700 billion bank bailout.

Principal said it made the application as a savings and loan holding company, given its ownership of Principal Bank.

Life insurers are lining up to tap government sources of funding after being hurt by investment losses.

Principal's profit tumbled 60 percent in the third quarter hurt by losses tied to impairments on fixed income securities and equities.

Insurers have to be bank holding companies in order to apply to take part in the federal program. This has led to Hartford Financial Services Group Inc and Genworth Financial Inc, to buy small savings and loan companies in recent days. Both have since applied for government funding.

Late on Tuesday, Protective Life Corp said it was seeking bank holding company status, and had applied to the federal lending program.

Protective Life plans to buy Bonifay Holding Co Inc, a small bank with six branches in Florida, according to its website. There were no terms disclosed for the acquisition, which is subject to approval to take part in the federal capital scheme, Protective Life said.

Principal said that if it participates in the government program it would issue preferred shares and warrants to the U.S. Treasury. Proceeds would be used to support and capitalize its financial services and operating units, the Des Moines, Iowa-based company said.

Principal said it believes it is prudent to consider the government funding plan as another option to build on its position of financial strength, by adding to its capital cushion in a time of volatile and uncertain market conditions. (Reporting by Lilla Zuill; editing by Carol Bishopric)