Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, September 5, 1994                   TAG: 9409080013
SECTION: BUSINESS                    PAGE: A-8   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

CREDIT INSURANCE

Is the offer worth the price? Do you really need it when you know a primary purpose is to protect your creditor?

The answer may depend to some extent on the amount of the debt. If it is unusually large so that it would bite into your regular insurance program, perhaps you should consider buying the insurance if the price is reasonable.

Then again, it is an opportunity for coverage for some people who, for health or other reasons, have a hard time qualifying for a standard life or disability insurance policy.

One thing is sure, however, the policies are about to become more reasonable in price.

The Virginia Corporation Commission has ordered cuts in the rates for credit insurance, according to the Associated Press.

The commission acted last month on a recomendation from its Bureau of Insurance.

It cut rates of credit life insurance by 13.75 percent. It also reduced premiums for a variety of credit accident and sickness insurance by about 12 percent.

Steven T. Foster, state insurance commissioner, launched the crackdown on credit insurance after members of his staff found some insurers were paying as little as 15 cents of every premium dollar on claims.

The commission's aim was to set rates low enough to assure that at least 60 cents of every premium dollar collected goes to pay claims.

The latest cut is the second stemming from a 1992 regulatory crackdown on credit insurance.

The 60-cent loss ratio is a standard recomended by the National Association of Insurance Commissioners and, Foster said, is designed to make sure credit insurance rates do not become unreasonably high.

In July, officials from credit insurance cmpanies and their trade associations had asked the State Corporation Commission to consider a new way of regulating rates, saying the system the state used would not assure them adequate earnings.

Walter D. Runkle, vice president of the national Consumer Credit Insurance Association, told the commission that insurers had been pushing for several years for a different system that would account for other expenses in addition to claim costs.

But Foster said lower rates resulted from a compromise he initiated at the request of the insurers.

In Roanoke, two certified financial planners disagreed on whether people should buy credit insurance, either for life or for disability or both.

"I don't usually recommend it at all," said W. Hope Player, who is a certified public accountant as well as a certified financial planner.

Most people are able to pay their bills anyway, she said, so the credit insurance is "a stop-gap measure, a bandaid."

Her clients, she has found, have adequate insurance coverage in their overall situation to pay off their bills.

That's especially true with life insurance to get a credit card balance paid off, Player said. The coverage is expensive against the amount of the outstanding bill.

"There's a better way to handle things," Player said.

David Cissel, a fee-only financial planner with Financial Solutions in Roanoke, on the other hand, said that "I think it's okay."

"It depends on the premium that's being charged," Cissel said, but he noted that often the cost is high for the coverage afforded.

"I guess you can justify the need for it, he said. He cited the case of a person who has taken on a large debt. "I can see some advantage in having it paid off if something happens to you."

He said the State Corporation Commission action may make the coverage more palatable because the premiums "are out of line."

Cissel said he has no problem with the idea of credit life insurance, but "the companies' charges were way out of sight."

Before buying credit insurance, he said, people should get a handle on their overall life insurance needs. You are better off in an insurance program that takes a long-term view of the survivors' needs.

In buying any type of insurance, Cissel said, people need to consider three factors: the need for the insurance, the expense of the policy and the credit-worthiness of the insurer.