Maryland attorney general issues warning about credit insurance
Maryland Attorney General Douglas Gansler is warning consumers to beware of what can be a “costly and unneeded” insurance product — credit insurance.
Gansler says credit insurance “is notorious for being one of the most overpriced insurance products.” It is purchased by consumers who borrow money or make purchases on credit.
|“Consumers need to know what they are buying and how much it will cost before they commit to paying for credit insurance,” Maryland Attorney General Douglas Gansler says.|
“Consumers need to know what they are buying and how much it will cost before they commit to paying for credit insurance,” Gansler says. “Before you sign any contract, understand all the terms and costs.”
Credit insurance is rarely mandatory
Credit insurance may be sold under the pretense of being mandatory, but it rarely is, according to Gansler.
In Maryland, lenders cannot require the purchase of most types of credit insurance. Lenders can require credit property insurance on loans secured by a piece of property or a destructible possession, but a consumer is allowed to choose the insurance company.
“Lenders can’t deny you credit if you don’t buy optional credit insurance — and if you don’t buy it directly from them,” according to the Federal Trade Commission.
If a lender tells you that you’ll get a loan only if you buy the optional credit insurance, report the lender to your state attorney general, your state insurance commissioner or the Federal Trade Commission.
The types of credit insurance
There are four types of credit insurance:
• Credit life insurance, which pays off an outstanding loan if a consumer dies.
• Credit disability insurance, which makes payments on a loan if a consumer becomes disabled.
• Credit involuntary unemployment benefit insurance, which makes payments on a loan if a consumer is jobless because of a layoff, strike or lockout.
• Credit property insurance, which protects personal property used to secure a loan if it’s destroyed by events like thefts, accidents or natural disasters.
With credit insurance, the lender — not the consumer or his family — is named as the beneficiary. Payments are made only during the period of disability or unemployment.
Gansler recommends investigating alternatives to credit insurance, such as whether an existing life insurance policy provides adequate coverage.
Questions to ask
Questions to ask about credit insurance, according to Gansler, include:
• Is the premium financed as part of the loan? Will it increase the loan amount, boosting the interest you pay? Is it paid monthly?
• How long will you be covered? Some policies make payments for only four to six months.
• What’s included and excluded in the coverage?
• Is there a waiting period before coverage takes effect?