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Two consumer groups are urging states to tighten controls on credit life insurance policies they say are far too expensive and unnecessary for most customers.

"This is pervasive throughout all segments of the installment loan market," said Stephen Brobeck, executive director of the Consumer Federation of America. "Credit life insurance is the nation's worst insurance ripoff."Credit life insurance is sold by banks, finance companies, auto dealers and other lenders to consumers taking out installment loans. The policies pay off the loan if the borrower dies.

CFA and the National Insurance Consumer Organization released a report Monday calling on state insurance departments to require lenders to return to consumers at least 70 cents in benefits for each dollar paid in premiums.

"This would force a drastic reduction in price in almost all states," the report said. It said the 1988 benefits payout amounted to 43 cents on the dollar. The rest went for profits and administrative costs.

The two groups also exhorted state insurance departments to launch massive education campaigns to let consumers know they don't have to buy the insurance when they buy a car, sign up for a credit card or take out a loan.

"In most cases, people need life insurance to protect against the economic consequences of early death," said Bob Hunter, president of NICO. He said a comprehensive life insurance policy should be extensive enough to cover unpaid loans.

"You shouldn't buy life insurance to cover your credit" separately, Hunter said. It costs more and does not allow a spouse or other survivor to continue making monthly payments; the separate policy would pay off the loan immediately.

Virginia Stafford, a spokeswoman for the American Bankers Association, whose members sell many credit life insurance policies, said many people do not have comprehensive life insurance policies.

"For those customers, credit life insurance may represent a good deal," she said.

Stafford said her group does not believe consumers are being overcharged. But she agreed they should be better educated about their choices.

According to the two consumer groups, more than 70 million credit life insurance policies were in force in 1988. Consumers paid $2.1 billion in premiums and received $900 million in benefits that year.

Some policy holders are unaware they have bought credit life insurance, others are led to believe they need it to obtain a loan and others fall victim to emotional pitches to protect their loved ones when they die, the report said.

Lenders also make it difficult to refuse the insurance by building it into the monthly payment, the report said, necessitating a rewrite of the loan papers if the policy is refused. Customers also are no able to find out if the price is fair, the report added.