Beware of ‘add-on’ insurance

Watch out for the high-pressure insurance sale.

You might not need the policy and if you do, you might be paying more than you need to.

If you’re buying a car, a home, furniture, electronics or travel — even if you are borrowing money — there is often someone trying to sell you “add-on” insurance for it.

But consumers often are paying inflated prices because of commissions that one consumer group calls kickbacks.

“When you’re not on the make for insurance and someone else is approaching you, then someone is approaching you because they are making a kickback,” said J. Robert Hunter, insurance director for the Consumer Federation of America, a nonprofit association of 300 groups. “That’s a red flag. Slow down. Research. Call a few other people.”

Hunter, a former Texas insurance commissioner and federal insurance administrator during the Ford and Carter administrations, said “reverse competition” is rampant in the add-on insurance business.

Insurance companies, he said, compete to give agents the biggest “kickbacks” to sell their policies, which drives up the price of the products, whether a car or a camera.

In some cases, Hunter said, “reverse competition can more than double the price of insurance.”

Which kinds of insurance might be unnecessary or so bloated with high commissions that they become too costly? The CFA and other groups list these: credit or debt cancellation insurance; title insurance; travel insurance and collision damage waivers for rental cars.

Georgia Insurance Commissioner John Oxendine said all insurance sales involve commissions.

“There’s nothing wrong with a commission, it’s just that these ... they will have a higher commission, and that’s the key,” he said. “We encourage people to look at other options.”

Some lenders, for instance, require borrowers to buy credit insurance.

“It’s legal for them to require you to buy credit insurance, but it’s not legal if they require you to buy it from them,” Oxendine said. “You can buy it from a lender or you can buy it from an insurance agent.”

There are options.

For example, policies are available to cover an entire houseful of appliances, overriding the need for point-of-sale warranties for each appliance. On certain recreational vehicles, like personal watercraft, homeowners’ policies often will cover losses.

For travel coverage and rental cars, premium credit cards usually offer a raft of benefits that make add-on insurance unnecessary.

“I’m not saying you shouldn’t buy things from a salesperson,” Oxendine said. “But quite often they will be overpriced, and you might also [already] have coverage.”

He suggests consumers take a second look.

“Maybe what you should do is walk away from the store and find out if you need to insure [your purchase] and find out if it’s cheaper somewhere else. And then go back to the store.”

He also suggests calling his office for advice, at 1-800-656-2298 from 8 a.m. to 7 p.m.

“This is the bottom line key with any kind of insurance,” Oxendine said. “You should never make a decision when you’ve got pressure and time constraints. That’s when people get ripped off and make a mistake.”

According to Hunter, here are three basic questions to ask before buying add-on insurance:

● Do I really need it?

● If so, do I already have coverage in my insurance policies for life, health, disability, home and auto insurance?

● If not, are there less expensive options? An insurance company or agent may be able to identify these options.

Some insurance purchases are required, as is the case with real estate title insurance. But the cost can still be inflated by high commissions, and a savvy buyer can save money at the closing table.

Banks and other lenders usually require buyers to pay for title insurance, which is supposed to protect buyers from ending up with real estate that’s tied up with unpaid taxes or other claims.

And it insures the seller who legally owns the property. If a problem arises after a closing, a title insurance policy pays to fix the problem or pays for the losses.

Title insurance premiums are based on the value of the property and, in Georgia, a consumer usually pays between $500 and $1,000.

“Before you get to the closing, you better think about title insurance,” Hunter advises. “It’s worth a couple of calls. In some places like Texas, the prices can be thousands of dollars for title insurance. You can save significant money.”

Although consumer groups like the CFA have railed for years about inflated commissions and reverse competition with credit and title insurance, there’s no real movement to fix the system nationally. Each state deals with the issue differently.

Hunter has hopes the Obama administration’s creation of a consumer protection agency, the Bureau of Consumer Financial Protection, will tackle these kinds of issues.

But the agency created more than a month ago still doesn’t have a leader.

How to talk to salespeople

• Here are some tips to remember when a salesperson starts talking insurance:
• Be cautious and take your time. Resist pressure to make a quick decision. Take home a copy of the policy describing what's covered and the price.
• Examine what it is you want to protect. Ask yourself if you already have the protection in another policy, such as life, health, disability, home or auto insurance. You cannot collect twice for the same claim from two policies. Insurers will coordinate one payment.
• If you think you need protection, shop with insurance companies. For example, if you wonder who would pay the mortgage if you died while traveling, consider a good term life insurance policy that not only covers those mortgage payments but would meet grocery, housing and education costs and other needs of dependents. Insurance usually costs more and covers less if bought in pieces and from different sources.
• Compare prices by searching Internet sources and calling insurance companies or agents.

For more information

• A report on credit overcharges by the Consumer Federation of America and the Center for Economic Justice: www.cej-online.org/2001credit.pdf
• Testimony about title insurance before a subcommittee of the U.S. House Committee on Financial Services: bit.ly/cSpckk
• One example of the credit card benefit for auto rentals that makes collision damage waiv unnecessary: bit.ly/bwTFas
• Article from a rate comparison site, paid for by insurance company advertising, showing the top five worthless auto insurance add-ons: bit.ly/azHao7
• Georgia Department of Insurance consumer services line: 404-656-2070 or toll free, from 8 a.m. to 7 p.m., 1-800-656-2298, www.gainsurance.org