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Glen Tabor has always liked the idea of a special credit life insurance policy backing the loan on his cars. He always liked the financial protection it provided even though he has other life insurance that will cover his mortgage and provide his wife with living expenses for several years if he dies. His brother-in-law didn't add credit life to his car purchases. Recently, Tabor said, his brother-in-law died, leaving his sister stuck with a car note.
''It was just kind of a reinforcement to find suitable life insurance policy,'' Tabor said. When he bought a car late last year, Tabor spent $ 412 on a policy covering the 42-month, $ 11,900 loan. Despite the high cost relative to some other types of life insurance, credit life insurance has its attraction to people like Tabor who don't want their families to worry about paying off loans or losing the house or car in case they die. Greater government attention has brought the costs of the policies under control and curbed some of the abuses that gave credit life a bad reputation in some quarters.
Such policies are normally sold by car dealers, banks and other lenders to cover the amount of a car loan, mortgage or other credit. They work best for people with health problems, borrowers more than 50 years old, and folks who do not have other life insurance policies covering them, experts said. But, despite government regulation, the policies are expensive, especially if the premiums are rolled into your loan balance, and credit life eliminates some of your financial flexibility.
''For a healthy individual, especially a healthy young individual, it's overpriced,'' said Howard Magill, actuarial officer with the Tennessee Department of Commerce and Insurance. ''It's not nearly as bad as it was 10 years ago.'' In Tennessee, the legislature set a cap in 2003 on what you can be charged for credit life insurance. The maximum rate - and virtually every company charges the maximum - is 66 cents per year per $ 100 worth of coverage when the amount of the insurance declines as the loan balance is paid down. A joint decreasing-balance policy is $ 1 per $ 100 annually. For a level insurance policy amount, the top charges are $ 1.22 per $ 100 for a single policy and $ 1.84 for a joint policy, Magill said. Joint policies pay off if one of the two people covered dies, he explained.
About 40 percent of the amount goes into the commission earned by the banker, car dealer or other seller of the insurance policy, Magill said. By contrast, a term insurance policy - one that pays off at the death of the insured person but has no savings or investment value - costs about 17.5 cents per $ 100 per year for a $ 100,000 policy on a 35-year-old nonsmoker. The older you are, the better the deal appears because the rate does not change according to your age, Magill said. For people 50 or older, the rate often becomes better than they could get on a standard insurance policy, said Donald D. Batchelor, manager of Union Planters Insurance Services and president of Planters Life Insurance Co., the credit life subsidiary of Union Planters Corp. of Memphis. On Monday, Batchelor will become branch manager of Johnson & Higgins, an international insurance broker based in New York.
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