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.

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 consumer’s 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 consumer’s 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.