Here's a worst-case scenario: You buy on credit an expensive consumer item like a car, a set of furniture, a refrigerator.

Then you die.

If you have credit life insurance, the item will be paid for. Credit life is a form of financial security, say the insurance companies that sell and, not so coincidentally, make hefty profits off it. Your loved ones, they say, will be protected after you're gone.

Consumer advocates have a different view, which is that credit life is a waste of money. The Virginia Citizens Consumer Council has hammered the message home in its just-released "analysis of the effectiveness of Virginia's credit insurance regulatory system."

First, though, it's useful to have some idea of exactly how credit life (and its related cousin, credit disability coverage, which takes over when you lose your income due to injury or illness) gets sold to consumers.

Often they may be only barely aware of what they're buying, since the purchase of the insurance is tangled up with not only the cost of the original item but also the financing for it: You make one monthly payment for all three items. An article in the September 1988 issue of ABA Banking Journal, "Making the most of credit insurance," illustrates this point quite handily.

As a tool for helping bankers capture the "significant revenue" that credit insurance can generate, the article provides a "five-step selling process." First is offering the product, which means "quoting the payment with the cost of credit insurance built in."

If the consumer protests at this point, the bankers are advised, Step Two is necessary: listening to the objection, which usually involves either the cost or the necessity of credit insurance. Step Three then requires the loan officer to "Express Understanding."

For example, he might say, "I know what you mean, things are a little tight around my house right now, too." The soft sell is best, so Step Four merely suggests underlining the fact that, should the borrower unexpectedly meet his maker, "there would be a tremendous financial burden" in paying off that car or refrigerator.

Step Five is sealing the deal. To achieve this, the primer says, "the lending officer simply proceeds with the transaction ... Frequently used closing statements are, 'Okay, all I need now is your signature right here.' " With such a smooth set-up, the customer might never realize how or why he's buying insurance in the first place, in spite of the mandated presence of a "voluntariness" check-off box on the loan application form.

A key test in the evaluation of insurers is their loss ratio -- the proportion of the premiums that get paid out in claims. For example, the typical life insurance company pays out 85 cents for every dollar it takes in; the remainder is sufficient for overhead and profit. But the Virginia Citizens Consumer Council report found nine of the 10 largest credit disability writers in the state had an average loss ratio of 38.5 percent. That's way below the 50 percent set by law. (While the average loss ratio for credit life was even lower -- 36.6 percent -- the law isn't as specific about what the appropriate figure for it should be.)

So these companies are all blatantly breaking the law? Ken Schrad, a spokesman for the State Corporation Commission, which includes the Bureau of Insurance, says that the firms "are being asked to explain why they're producing ratios outside what's required by statute ... The Commission basically hasn't had a look at this thing for eight to 10 years."

Spurred by the VCCC report, a Commission review is in process; some answers are expected by the end of next month. Maximum penalties of $5,000 per policy issued are possible, as is loss of license.

In the meantime, those minimal loss ratios suggest that a huge percentage of the $187 million paid by Virginia consumers in credit life and credit disability premiums in 1988 ended up as commissions to the creditors -- those banks, stores and finance companies from which they bought the object in the first place.

"Competition does not work in the credit insurance marketplace. Instead, reverse competition exists because the {creditor} has an incentive to obtain and sell the most expensive insurance available," the report says. Of course: That's where the highest commissions are.

A much better idea than credit life or credit disability, consumer advocates say, is adding to your basic insurance coverage. If there's anyone who would benefit from credit life, it would be senior citizens, particularly those in poor health. But a 1987 American Association of Retired Persons report found that "generally, insurers will not write credit life for those over 65 unless states require them to do so." In most states, there is no such requirement. In Virginia, insurers can refuse to sell their product to those over 70.

Auto Update

A Style Plus article Jan. 7 recommended that prospective car buyers first check out how much the insurance will be. District resident Frances Hardin tried to do exactly that, and ran into a roadblock. "I believe it's impossible to shop around for coverage," she said in a letter detailing her experience.

Last spring, Hardin's 9-year-old Toyota Tercel was totaled while it sat legally parked. Insurance had been around $435 a year. For a replacement car, Hardin decided on a new high-fuel Honda Civic CRX. Before concluding the deal, she asked her Allstate agent what the new insurance would be. A maximum of $615, she was told.

After she bought the car, her first insurance bill showed a premium of more than $900. When she called the agent, things got even more interesting. He denied giving Hardin an estimate and "said anyway it would have been impossible to have given me a quote because insurance companies do not know how much they will charge for premiums until they know the vehicle's exact serial number."

Hardin said she then complained to the Allstate regional office, which backed the agent up. "Frankly," she concluded, "I would not have bought the car if I'd known the insurance would be so high. I have reduced it somewhat by raising deductibles and, of course, I've changed agents."

An Allstate spokeswoman said their agents are encouraged to give quotes, and suggested that Hardin had either misunderstood or that the agent had made a mistake. "It's unfortunate what happened," said Peggy Killian, "because she did exactly what a responsible consumer should do."

Stephen Brobeck, executive director of the Consumer Federation of America and the authority in the earlier story who suggested buyers check out insurance prices in the first place, offered these potential explanations for Hardin's experience:

The agent made a guess about the premium that was incorrect and didn't want to admit it.

The agent did not want to discourage Hardin from purchasing the Civic, because the premium would rise substantially and so would his commission.

When companies are represented by independent agents, Brobeck added, they tend to back them up. "Even though some agents' commissions are being squeezed by their companies, they still have a great deal of leverage. If an agent sells policies from three different companies and they're all roughly the same, what is going to be the basis for his decisions? It could be factors that are extraneous to the consumer -- which company has treated the agent the best, or which has paid him the highest commission."

Killian, the Allstate spokeswoman, said the company generally doesn't use independent agents in this area, and that Hardin's response from the regional office was again a problem in miscommunication.

Brobeck believes that misadventures like Hardin's "happen fairly frequently. Some agents clearly do a poor job of serving their customers. If consumers were more demanding of their agents, there would be more marketplace discipline." The moral of the story: If you shop around, differences in both price and service will be readily apparent.