Consumer loan companies Aiful Corp. and Promise Co. plan to stop taking out life insurance policies on borrowers after being criticized for "using" their lives as collateral for loans, industry sources said Wednesday.
Consumer loan companies often purchase group life insurance contracts after providing credit to borrowers. If the debtor dies of illness or commits suicide, the lender collects on the policy.
In response to the criticism, life insurers are expected to ask moneylenders to be more careful in obtaining borrowers' consent when buying life insurance, prompting concern among lenders about administrative costs and higher premiums as the number of insured borrowers falls.
Aiful and Promise cited the criticism, higher costs and premium hikes in their decision to stop taking out insurance policies on borrowers, the sources said.
But other major consumer loan companies are concerned the elimination of life insurance for borrowers could result in more loan defaults.