Despite rate decreases, consumer advocates have renewed their attack on credit insurance.
Consumers Union of Yonkers, N.Y., and the Center for Economic Justice of Austin, Texas, released a study that claims consumers spend $2 billion a year on unneeded credit insurance on auto loans, credit cards or other debts.
In total, more than $17 billion in credit insurance was sold in the United States from 1995-97, the study says. Credit insurance pays a lender if the borrower becomes disabled or dies.
'We think most consumers should stay away from this product,' says Mary Griffin, insurance counsel for Consumers Union, which publishes Consumer Reports. Credit insurance 'is a bad deal and it's only getting worse,' she said at a news conference March 9.
Many consumers already have life insurance policies that cover their debts if they die, and homeowners insurance often covers property losses, Griffin noted.
But insurance industry experts counter that credit insurance rates are set by the states - not car dealers, and other businesses that sell credit insurance. Gary Fagg, a Colleyville, Texas, consulting actuary and expert on credit insurance, says the average rate for credit insurance has declined 15 percent from 1984-98.
Still, the consumer advocacy groups say people should only consider buying credit insurance if they are in states where the insurance is the cheapest or if they are elderly or sickly. According to the Consumers Union study, the states with the lowest rates are, in order: New York, Maine, Pennsylvania, Vermont, New Jersey, West Virginia, Rhode Island, Michigan and Virginia.
Dave Robertson, executive director of the Association of Finance & Insurance Professionals in Bedford, Texas, says rate decreases in New York have made it unprofitable for many dealers to offer credit insurance to customers.
'For a lot of people,' Robertson says, 'this is not only the cheapest insurance they can buy, but the only insurance they can buy.'
The Associated Press contributed to this report.