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Insurance > Credit Insurance
Credit insurance is a ripoff for consumers, groups say
MARCY GORDON, AP Business Writer. Associated Press.
Copyright Associated Press
WASHINGTON (AP) - Consumers who buy credit insurance when they take out a loan, buy a car or get a credit card are being overcharged by $2 billion a year, Consumers Union and another group charged Tuesday.
Mary Griffin, insurance counsel for Consumers Union, and Birny Birnbaum, consulting economist for the Center for Economic Justice, blamed state insurance regulators for what they said is lax supervision of credit insurance sales.
"We're asking the states to do their job," Birnbaum said at a news conference.
An official of the National Association of Insurance Commissioners, which represents the state regulators, said they shared some of the concerns about credit insurance rates and were looking into the matter.
Several regulators "have expressed concern about the credit industry in general" and credit insurance rates, said Steven Larsen, chairman of the NAIC's market conduct and consumer affairs committee.
"This needs to be re-examined," Larsen, who also is Maryland's insurance commissioner, said in a telephone interview.
Credit insurance pays a lender, such as a bank or finance company, car dealer, department store or credit card company, if a borrower becomes disabled or dies. Other types of credit insurance provide for monthly payments if a borrower loses his job, or for repair or replacement of property bought with the loan or used as collateral.
More than $17 billion in credit insurance was sold in this country in 1995 to 1997, according to Consumers Union, which publishes "Consumer Reports" magazine, and the Center for Economic Justice, an advocate for low-income consumers.
Although buying the insurance usually is not mandatory, the two groups maintain that lenders often coerce consumers into taking it.
The groups released a study of credit insurance sales in that period which concluded that most consumers are paying more than is reasonable.
"We think (most) consumers should stay away from this product," Ms. Griffin told reporters. Credit insurance "is a bad deal and it's only getting worse," she said.
An exception, Ms. Griffin said, involves those consumers who live in states with cheaper rates for credit insurance or who are elderly or in poor health.
The states with the cheapest rates, according to the study, were New York, Maine, Pennsylvania, Vermont, New Jersey, West Virginia, Rhode Island, Michigan and Virginia, in that order.
Many consumers already have life insurance policies that cover their debts if they die, and homeowners insurance often covers property losses, Ms. Griffin noted.
Janet Eissenstadt, a spokeswoman for the American Bankers Association, agreed with that point.
As with any financial product, consumers should examine whether they need credit insurance, she said.
"Read the fine print," Ms. Eissenstadt advised.
Daniel Zielinski, a spokesman for the American Insurance Association, the industry's largest trade group, had no immediate comment.
The states with the most unreasonable rates, according to the report, were Louisiana, Mississippi, North Dakota, Alaska, Nevada, Nebraska, New Mexico, Minnesota, South Dakota and Utah, in that order.
The rankings were based on average loss ratios for credit insurance in each state. The loss ratio is the ratio between the total amount paid out in benefits and the amount the consumer paid for the insurance.
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
People: Griffin, Mary
Companies: Consumers Union
Text Word Count 520
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