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.”