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Citigroup Inc., New York, last week announced it will no longer offer its single-premium credit insurance product on home-mortgage loans.

The product, maligned by politicians and community activists, covers a homeowners mortgage payments in case the policyowner loses her job, becomes seriously injured, or dies.

Because it is rolled into the financing of the mortgage, SPCI can cost a policyowner an extra 15%-20% in finance charges over the life of the mortgage, even after the period of credit coverage has expired. Activists say such a product can be a trap for people with low income, to whom this product is generally targeted, because of this extra finance charge–a sum that can prove onerous and even result in the loss of a home when coupled with interest charges.

Critics say that if the product were sold separately as a life insurance or employment insurance policy, the charges wouldnt be as high and it would likely offer more coverage.

But William Burfeind says that Consumer Credit Insurance Association studies show the consumers who buy SPCI are “grossly underinsured, if they have any insurance at all. They dont go into the marketplace to seek alternative insurance products and that alternative market doesnt come to them.”

The executive vice president of CCIA, a Chicago-based industry trade association of insurance companies, adds that “the financed purchase of credit insurance is no different from the financed purchase of a vacation or a wedding or consolidated credit card debt and all the types of products and services that that consolidated debt represents.”

Of critics contention that other types of insurance are less expensive and offer more coverage, Burfeind says comparison shopping almost always turns up better deals on most products; and, “on balance the price of credit insurance is as affordable and in many cases more affordable than many term insurance options.”

Nonetheless, U.S. Sen. Charles Schumer, D-N.Y., and consumer activists, who worked with Citigroup to reach the decision to drop SPCI, have expressed hope that other home-loan companies will follow Citigroups lead and curb aggressive lending practices.

Bob Hunter, director of insurance with the Consumer Federation of America in Washington, says paying for single-premium credit insurance is equivalent to paying interest twice. He calls Citigroups move “a positive step, but I dont know what theyre replacing it with.”

In a memo to CitiFinancial employees, Robert Willumstad, chairman and CEO of Citigroups Consumer Group, says single-premium credit insurance has “been approved by state regulators and voluntarily purchased by borrowers. Yet few products in our industry have been the subject of more attention and focus. Primarily, critics claim that when tied to a mortgage, this product can lead to loss of a home.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 13, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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