This content was published prior to the combination of Dentons Sirote. Learn more about Dentons Sirote. 

Credit sellers and lenders are continually challenged about the value of credit insurance that may be offered to consumers as part of a sale or loan transaction.  Consumer advocates challenge the value of such “ancillary products,” contending that such products are nothing but profit generators for creditors and a way to pass profit to creditors without increasing the stated finance charge.  That is the rationale for inclusion of the premium for such products in the so called “all in APR.”  Their argument has found its way into those laws and regulations that determine such products to be the equivalent of a finance charge.

One thing that the recent COVID-19 pandemic has proven is that there is very real value in credit insurance products. Even before the pandemic, consumers had been receiving the benefits of credit insurance for years.

Now, as customers have lost jobs on a massive scale or been physically sickened by COVID-19, those with Involuntary Unemployment Insurance or Disability Insurance, have been able to make claims on their insurance policies, and have reaped the benefit of such insurance. Creditors are advising those customers who have insurance that there is indeed relief available to them through the insurance policies.  And, it is significant that these credit insurance policies are generally not subject to the types of exclusions and waiting periods that prevent payment based upon the pandemic—as are most non-credit insurance products. 

Those who have long disparaged credit insurance products (including GAP waivers) are now confronted with the reality that such products serve an important role.  

Not all consumers—particularly non-prime consumers—have the privilege of an insurance agent calling upon them periodically to sell them non-credit life insurance and disability insurance.  In fact, none have an agent selling them involuntary unemployment insurance. Rather, finance companies and credit sellers, as agents for credit insurance companies may offer unrestricted availability and ease of purchase of credit insurance to their customers; and, this has proven to be of great value to so many consumers. 

Practice Pointer:  When an insured consumer is unable to make payment, remember to file a claim on his or her behalf.

Please Note: This is the one hundred eighth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.