Consumers who purchase credit insurance when they take out a loan, buy a car or get a credit card, are being ripped off to the tune of $2 billion a year, Consumers Union and another group charged Tuesday.
Credit insurance pays a lender - such as a bank, finance company or credit-card company - if a borrower becomes disabled or dies. Other types of credit insurance provide 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 the United States from 1995 to 1997, according to Consumers Union and the Center for Economic Justice. The groups released a study of credit insurance sales in that period and concluded that most consumers are paying more than is reasonable.
Although buying the insurance usually is not mandatory, the groups maintain that lenders often coerce consumers into taking it. "We think (most) consumers should stay away from this product," Mary Griffin, insurance counsel for Consumers Union, said at a news conference. Credit insurance "is a bad deal and it's only getting worse," she said.
Many consumers already have life insurance policies that cover their debts if they die, and homeowner's insurance often covers property losses, she noted.
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, are New York, Maine, Pennsylvania, Vermont, New Jersey, West Virginia, Rhode Island, Michigan and Virginia, in that order.
Ms. Griffin and Birny Birnbaum, consulting economist for the Center for Economic Justice, blamed state insurance regulators for what they said was lax supervision of credit insurance sales. "We're asking the states to do their job," said Birnbaum, whose group is an advocate for low-income consumers.
Spokesmen for the National Association of Insurance Commissioners, which represents the state regulators, weren't available for comment.
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