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Household Eliminates Single-Premium Credit Life Insurance

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July 13, 2001
Household International, the nation's largest independent consumer finance company, says it will stop selling single-premium credit insurance, which has been fiercely criticized by consumer advocatges as a predatory practice that unfairly targets minority and low-income customers.

Household's announcement came less than two weeks after Citigroup said it would eliminate single-premium policies from its business, including loans made by Associates, which it acquired recently.

Critics object to single-premium insurance because consumers pay for a full 20 to 30 years of coverage, which they often do not use. The price of the insurance is loaded into the mortgage and the consumer pays interest on it over the life of the loan.

Credit insurance is intended to protect the consumer by paying off the amount of the loan if the consumer dies or becomes disabled. Consumer advocates say the theory is sound but in practice, the insurance is often over-priced.

Both Citigroup and Household say they will instead sell monthly credit insurance, so that consumers buy the coverage on as pay-as-you-go basis. Neither company anticipates any significant change in earnings from the change, spokesmen said. Household estimates it would lose about $10 million per year if it eliminated credit insurance entirely.

Household's decision came as something of a surprise, since it had vigorously defended its practices as recently as last month. But consumer advocates, led by the National Community Reinvestment Coaltion, have been stepping up their efforts to expose predatory lending practices and a Household spokesman said the resulting publicity played a part in the company's decision.

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