A Loan.

[Mikeylikes]

i am in the state of alabama and i have been approved for a loan of $5,000. the person told me that the only way that i could get the loan is to pay the insurance for the loan upfront, (just incase i die the loan will be paid.). This is not a loan for a automobile or a house it is just a personal loan from a loan company. a friend told me that this is illegal for a company to make u pay the insurance upfront. is this true? i went to the BBB to see how the company was rated and they dont show up on the BBB. I know that the company is in Canada. Can u pls advise me what i should do, i dont want to get taken for $250 (that is what the insurance costs).


Thanks,
Scared

 

[michael1113]

When in doubt: Don't. I am not familiar with that kind of operation. Usually it's added into the value of the loan, and payable with your monthly payment. This could be a fraud, or it could be part of the Canadian law. I would stick to your city/state banks and credit unions for a loan. You may even want to take the documentation in with you to a bank and get an opinion on it.

 

[JETX]

What you are being asked to pay is what is called 'Credit Life Insurance'. In itself, it is not unusual to require it, but the 'prepayment' requirement smacks of possible scam. What if you pay it and they then 'refuse' or 'forget' to fund the loan?? You will have to go after a 'shell' company with no assets.

Some random thoughts:
1) The cost of credit life insurance is normally added to the monthly premium (as in most insurance). If you are current, you are covered.

2) The Alabama Dept of Insurance has a policy saying that Credit Life:
"All credit life insurance policies must comply with our Regulation 117.
"All credit life insurance rates must comply with the State Banking Department’s Regulation 155-
2-2-.12. An actuarial memorandum demonstrating equivalence to Banking Department prima facie rates must be filed with the policy."
http://www.aldoi.org/pdf/LH_FilingRequirements.pdf
Regulation 17: http://www.aldoi.org/page.cfm?view=110&DocID=820
Banking Dept: http://www.bank.state.al.us/index.htm

3) I would consider contacting the Alabama Dept of Insurance and asking about the validity of the insurance prepay requirement.
http://www.aldoi.org/

Finally, if they still insist on a prepayment of this insurance premium, I would look for another lender.