Newspaper article St Louis Post-Dispatch (MO)

Credit Life Can Be a Windfall - for Sellers

Newspaper article St Louis Post-Dispatch (MO)

Credit Life Can Be a Windfall - for Sellers

Article excerpt

It's the job of each state to regulate the insurance industry so consumers won't get ripped off.

If you need further proof that most states are not doing their job, take a look at the legal thievery in credit-life insurance. Credit life pays off a particular loan if you die with payments still due. It's typically packaged with disability insurance, and sold in conjunction with installment loans, auto loans, personal loans and credit cards.

An estimated 60 million consumer loans are currently covered, according to the Consumer Credit Insurance Association in Chicago, Ill. Credit life coverage can be useful. It's a simple way of leaving your family without consumer debt. In a better world, your regular life insurance would cover your payments and leave extra money for your family. But most American families are underinsured. Credit life at least has the virtue of being readily at hand. It also covers people with health problems who might not find insurance somewhere else. The shame of credit life is its cost. In most states, the lenders who sell this insurance brazenly mark up its price. They've got a monopoly. If you get a loan from XYZ bank or auto dealer, there's only one policy you can buy. Lenders tend to pick policies that pay them the highest sales commissions rather than those that cost the customer the least. Just as shamefully, most states do nothing about this. Many legislatures even protect the scam. In 1979, the National Association of Insurance Commissioners (NAIC) reco mmended a standard for credit life. Of every $1 that consumers pay in premiums, the NAIC said, the insurer should pay out at least 60 cents in claims. That leaves the insurers and lenders 40 cents out of every dollar to cover expenses and profits. Who has bothered following that rule? Only Maine, New York, Rhode Island and the District of Columbia, over the 1993-95 period, reports the Consumer Federation of America (CFA). Most credit unions, in any state, also sell the insurance at reasonable rates. In Maryland, New Jersey and Pennsylvania, rates were very close to the NAIC 60-percent standard. And then there's everyone else. …

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