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Appendix A - Credit Insurance Case Terminology

Return to Order No. 00-0214

APPENDIX A

Case Terminology

Credit Life pays off the consumer's remaining debt on a specific loan or credit card account if the borrower dies during the term of the coverage.

Credit Disability pays a limited number of monthly payments on a specific loan or credit card account if the borrower becomes disabled during the term of the coverage.

Credit Involuntary Unemployment pays a limited number of monthly payments on a specific loan or credit card account if the borrower becomes involuntarily unemployed during the term of the coverage.

Credit Property pays an amount sufficient to pay off the entire debt on a specific piece of property serving as collateral for the loan if the property is lost or damaged. Unlike the first three credit insurance products, credit property insurance is not directly related to an event affecting a consumer's ability to pay his or her debt.

Single Premium (SP) coverages are typically sold in conjunction with a closed-end, or fixed-term loan and the premiums for such coverages are typically calculated on a gross indebtedness basis.

Outstanding Balance (OB) products are typically sold in conjunction with open-end or revolving loans, such as credit cards. The monthly payments are typically based upon the monthly outstanding balance on the revolving loan or credit card.

Single Life coverages - the insurance pays if the single person covered dies.

Joint Life coverages - the insurance pays if the borrower or co-borrower dies.

Reducing exposure - the exposure to the credit insurer declines over the term of the loan.

Level exposure - the exposure remains the same during the term of coverage and is payable in a single sum at the end of the loan.

Waiting periods for credit disability coverages in Texas are currently 14 and 30 days.

Retroactive coverage - benefits are paid from the first day of disability once the waiting period has elapsed. For example, with a 14-day retro coverage, benefits are paid from the date of disability after the debtor has been disabled for 14 days.

Non-retroactive coverage - benefits are paid from the day after the end of the waiting period.

Rates are stated in terms of dollars per $100 of gross initial indebtedness for SP credit insurance and in terms of dollars per $1000 of outstanding balance for credit insurance.

Gross indebtedness refers to the total of all principal and interest payments. It includes loan principal, loan interest, credit insurance premium, and credit insurance premium loan interest.

Non-contributory coverage - in the past, lenders purchased a credit insurance policy to provide coverage for the entire portfolio of loans and the cost was absorbed by the lender as a cost of business.

Contributory coverage - at the present time, credit insurance policies only cover borrowers who pay for the coverage.

Reverse competition - insurers compete for the business of lenders by providing higher commissions and other compensation to the lender, which results in higher costs to the consumer.

Presumptive rate - is one determined by the Commissioner to be just, reasonable, adequate, not confiscatory, or not excessive to insurers, the insureds, or agents.

Rate standards - article 3.53 of the Texas Insurance Code and 28 TAC §3.5001 through 3.6403 contain the standards, which include factors to be considered, including: reasonable acquisition costs, loss ratios, administrative expenses, reserves, loss settlement expenses, type or class of business, duration of various credit transactions, reasonable and adequate profits to insurers and other relevant data. The basic test of reasonableness of benefits to premium charges is loss ratios of 50% for credit life and 60% for credit disability coverage. See 28 TAC §3.5202.

Loss Ratio - is the ratio of claims incurred to premiums earned.

[The foregoing definitions were taken from the prefiled testimony of Birny Birnbaum]

Types of Coverage

1. Credit Life Coverages

Single Premium, Reducing Coverage, Single Life
Single Premium, Level Coverage, Single Life
Single Premium, Reducing Coverage, Joint Life
Single Premium, Level Coverage, Joint Life
Outstanding Balance, Revolving Loan, Single Life
Outstanding Balance, Other, Single Life
Outstanding Balance, Revolving Loan, Joint Life
Outstanding Balance, Other, Joint Life

2. Credit Disability Coverages

Single Premium 14-day Retroactive
Single Premium 30-day Retroactive
Single Premium 14-day Non-Retroactive
Single Premium 30-day Non-Retroactive
Single Premium 90-day Non-Retroactive
Outstanding Balance Revolving 14-day Retroactive
Outstanding Balance Revolving 30-day Retroactive
Outstanding Balance Revolving 14-day Non-Retroactive
Outstanding Balance Revolving 30-day Non-Retroactive
Outstanding Balance Other 14-day Retroactive
Outstanding Balance Other 30-day Retroactive
Outstanding Balance Other 14-day Non-Retroactive
Outstanding Balance Other 30-day Non-Retroactive
Outstanding Balance Other 90-day Non-Retroactive



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Last updated: 10/24/2014

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