CONSUM ER
Credit insurance
not a good idea
Consumers who buy on the in
stallment plan or borrow from loan
companies or banks often find
themselves paying “ hidden” credit
insurance charges along with the
customary interest payments.
According to recent congres
sional subcom m ittee hearings,
these insurance charges fall heavily
on young buyers who are not aware
that, under the federal truth-in
lending law, credit insurance is op
tional.
Witnesses testified that some
finance companies, car dealers and
banks put pressure on borrowers to
buy credit life or disability in
surance — the type of insurance
which pays off your remaining debt
if you should die or become dis
abled.
A blind couple, among others,
told the Senate investigators that
they had been led to believe that
they had to take the insurance as a
condition for getting a loan.
Since credit life insurance is
almost always sold at the same rate
to borrowers regardless of age (up
to 65), "a 25-year-old pays the same
as a 55-year-old who is eight times
more likely to benefit from it,” ac
cording to James A. Hunt, a con
sulting actuary from Concord, N.H.
Hunt testified at hearings held by
the contract a fee for credit life in
surance that would repay the dealer
if he dies. When he told the dealer
that he didn't want the insurance, he
was told, “ You don’t have any
choice."
Although the cost of credit life in
surance does not loom large when
spread over 36 payments, it is nearly
always overpriced for the small
policy you get. In one case, the
buyer of a $15,000 mobile home was
charged an additional $3,500 for
credit insurance.
A random survey last year show
ed that one out of four finance com
panies urged customers to take the
insurance if they want the loan. A
survey by the Federal Reserve Board
among buyers of credit insurance
from banks, dealers or loan com
panies found that more than one out
of three thought that it was either re
quired or strongly recommended.
Still another study found that one
out of three who had insurance
covering credit-card debts to stores
did not know they had bought it.
Hunt, former state rating director
for the Massachusetts Division of
Insurance, said: “ Creditors like to
sell credit Insurance because they
make money on the sale of in
surance, and because they virtually
assure themselves of no bad debts
the Senate subcom m ittee on Anti-
when
T ru st and M o n o p o ly h ea d e d by Sen.
d is a b le d .”
custom ers
Howard Metzenbaum (D-Ohio).
With young people -applying for
consumer credit in increasing
numbers, and the average age of
those seeking loans declining,
these “ hidden insurance charges”
result in windfall profits for many
large creditors, Hunt said.
Young consumers continue to
buy the overpriced insurance,
studies show, because they are
poorly informed of the necessity for
it. “ A young couple w ill be thinking
only about their brand new .car, for
example, and w ill simply sign
anything the finance company asks
them to sign,” Hunt said.
A New Jersey resident found that
the car dealer who had arranged a
loan for him had simply typed into
Many of the larger lenders include
an insurance company within their
corporate structure. More often, ac
cording to Consumer Reports
magazine, the bank, finance com
pany or dealer acts, in effect, as an
agent for an insurance company.
The substantial commission for the
sale of the insurance is often 25 to
30 percent of the premium, though it
can run as high as 50 percent in
some states.
Thus, the charge for credit in
surance obtained through a loan
company or car dealer is often twice
as much as similar coverage would
cost if bought directly from an in
surance company as part of a con
ventional insurance policy.
W ATCH
THUMDERBIRD
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Medford, Oregon
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$4
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$235.00.
to OSEA Members
Call after 5:30 p.m.
362-9885 or 364-1494
$23/night single occupancy
2 blocks off 1-5
Adjacent to OPEU
RENT FROM A
FELLOW STATE EMPLOYE.
R yan w
(Formerly Holiday Inn)
745 Commercial St. SE, Salem, 363-2451
A ll n e w m e n u — L u n c h e o n s p e c ia ls — M o n . th u r Fri.
N ig h tly L o u n g e E n te rta in m e n t M o n . th ru S a t.
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$5,000.00 Life Insurance on your loan
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