Class Action Dilemmas: Pursuing Public Goals for Private Gain

By Deborah R. Hensler; Nicholas M. Pace et al. | Go to book overview

Chapter Nine CREDIT LIFE INSURANCE PREMIUM OVERCHARGING
LITIGATION: 1 INMAN v. HEILIG-MEYERS 2

PROLOGUE

When a consumer buys relatively costly items such as automobiles, furniture, or appliances, the purchase price is often wholly or partly financed by the dealership or retail store. When the contracts of sale and financing are signed, buyers are frequently asked if they would also like to obtain a special kind of insurance -- for an additional fee -- that wld protect their purchase from repossession if they were unable to make the required monthly payments as a result of various calamities. One such coverage, dubbed "credit life insurance," is designed so that in the event of the purchaser's death, no further payments of any installments would be needed. 3 The primary financial beneficiary of this type of insurance is not the purchaser's family, but rather the seller-creditor who would be paid directly for all outstanding amounts owed on the purchase. But such coverage allows the surviving family members to rest assured that they would not have to return the goods or incur continued monthly payments if income ceased due to death. Offering this coverage is attractive to retailers not only because they are confident that they will be paid in full despite the death of the purchaser, but also because they often receive a commission for the sale of each policy.

Most credit life policies are "decreasing" or "declining term" in nature; that is, the insurer is obliged to pay an increasingly smaller benefit to the retailer as the purchaser's balance decreases. Once all payments have been made, coverage is terminated. The credit life insurance premium is sometimes itself financed and included in a loan's repayment schedule. Credit life shares a number of similarities with other optional finance insurance policies, such as those that cover the loss of the property (credit property) or the loss of the purchaser's income from either involuntary unemployment (credit unemployment) or health reasons (credit disability).

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