|
Credit Insurance: The $2 Billion Dollar A Year Rip-Off
Ineffective Regulation Fails to
Protect Consumers
March 1999
Below is the Executive Summary of the
national report.
Please read the October 29, 1999 press
release update commending Commissioner
Montemayor for his recent rate decision.
For specific information on credit
insurance in Texas, please read this report and then proceed to the Texas section.
For information on credit property
insurance in specific states, please read the following executive summary and then choose:
Alabama, California, Colorado, or
Florida
Kansas, Missouri, New York, North
Carolina, or Pennsylvania
What is Credit Insurance?
Credit insurance is big business. From 1995 to 1997,
more than $17 billion of credit insurance was sold in the United States. Credit insurance
refers to a group of insurance products sold in conjunction with a loan or credit
agreement. The products may be sold by credit card companies, auto dealers, finance
companies, department stores, furniture stores or wherever loans are made and credit
extended for the purchase of personal property. The major types of credit insurance that
are the subject of this report are:
- Credit Life pays off the consumers
remaining debt on a specific loan or credit card account if the borrower dies during the
term of the coverage.
- Credit Accident and Health, also known as Credit
Disability, pays a limited number of monthly payments on a specific loan or credit
card account if the borrower becomes disabled during the term of coverage.
- Credit Involuntary Unemployment pays a limited
number of monthly payments on a specific loan or credit card account if the borrower
becomes involuntarily unemployed during the term of coverage.
- Credit Property pays to repair or replace
personal property purchased with the loan or credit proceeds and/or serving as collateral
for the credit if the property is lost, damaged or stolen. Unlike the first three credit
insurance products, credit property insurance is not directly related to an event
affecting a consumers ability to pay his or her debt.
This report reviews the performance of state
insurance regulators in protecting the consumers of credit insurance. Our analysis shows
that ineffective regulation has caused consumers to overpay for credit insurance by $2
billion dollars a year and has failed to protect consumers from unfair sales and market
practices. Additional problems exist for credit property insurance.
|