CREDIT LIFE COSTS PROTESTED : CALIFORNIA CONSUMERS OVERCHARGED $9 MILLION IN '95, INSURANCE ADVOCATES SAY.

Byline: Deborah Adamson Daily News Staff Writer

Consumers are being overcharged for credit life insurance, three advocacy groups said Wednesday, calling for state authorities to lower rates.

Californians paid $9 million in excess fees in 1995, according to a report by the California Public Interest Research Group in Mar Vista, Consumer Action in San Francisco and the Consumer Federation of America in Washington.

Nationally, consumers overpaid by $400 million, the groups said.

``It's a rip-off,'' said Pam Pressley, consumer attorney for CalPIRG. ``You're basically being overcharged for something you won't benefit from.''

Sold through financial institutions, credit life insurance pays off a debt or loan when the borrower dies. Premiums are assessed in a lump sum that's added onto the loan and charged at the same interest rate, while credit card customers pay monthly premiums added onto their balances.

The consumer groups are calling on Insurance Commissioner Charles Quackenbush to lower rates.

Rex Frazier, chief of the legislative bureau at the Department of Insurance, said the law prohibits the state from adjusting rates until it gets between two to three year's worth of data on insurance payouts at various creditors.

He said that the department will get information for 1995 and 1996 by mid-1997 and will analyze them at that time for any revisions, if needed.

Pressley said that the only consumers who should consider buying credit life insurance are the old and ill whose risks of dying are high and who don't have the assets or a life insurance policy to pay off their debts after they die.

If they belong to a credit union, they should buy the policy from it. Nearly all credit unions offer much better deals, the groups said.

The best measure of whether credit life insurance premiums are reasonable or not lies in the loss ratio. That's the portion of premiums that are actually claimed by consumers who have credit life insurance policies.

At least 60 percent of premiums should go back to consumers as benefits, according to the National Association of Insurance Commissioners. Nearly all credit unions meet this standard while it is rarely met by other sellers of credit life policy, with the exception of several states, the report said.

Consumer groups are advocating a higher level of 70 percent.

In California, about 50 percent of premiums were claimed by consumers. The nation logged in at 42 percent, averaging 43 percent from 1993 to 1995.

The three-year average for the state was 54 percent. It's the ninth best three-year rate in all 50 states and Washington, D.C.

New York came in first at 77 percent, the District of Columbia was second at 76 percent and Maine rounds up the top three at 72 percent.

Louisiana was the worst with a 21 percent average, followed by Mississippi at 28 percent and New Mexico at 30 percent.

Since peaking at 45 percent in 1993 nationally, the ratio has dropped.

Tony Quinn, spokesman for the Association of California Life and Health Insurance Cos. in Sacramento, said he is not aware of any problems associated with credit life insurance. He declined to comment on the consumer groups' report, since he has not read it.

However, he said that credit life insurance takes up a small piece of the $1.2 trillion life insurance pie in California - $8.6 billion.