Two consumer groups said Monday that life insurance policies that promise to pay off a loan if a borrower dies are the nation's worst insurance swindle.

The policies carry exorbitant rates in most states with consumers getting only 43 cents back on every dollar spent, a report by the National Consumer Federation of America and National Insurance Consumer Organization found.It said most borrowers do not even need the coverage.

The policies are typically sold by lending agents such as car dealers often as part of an agreement to buy a car or other major item on credit.

''This is the nation's worst insurance rip-off," said Bob Hunter of NICO in releasing the report at a news conference.

Consumers spend about $2.1 billion annually on life insurance policies tailored to cover a specific item bought on credit, or to cover credit card


But most people already have sufficient life insurance or other assets to cover the debt were they to die. Worse still, anywhere from 12 percent to 45 percent of purchasers do not even know they are paying for the policy in their loan repayments, or they are deceived into thinking it is a condition of getting the loan, the report said.

''This is high-priced insurance that no one should buy, or very, very few," said Mr. Hunter. Those who may need it are the elderly, sick or disabled, unable to get other coverage, he said.

''The evidence exists that you can get a better deal if you buy straight-term insurance," said Jay Morris, spokesman for the National Association of Life Underwriters.

Studies show that consumers can save 40 percent to 50 percent by buying comprehensive life policies, instead of such policies that are item-specific.

Major insurance companies, including The Prudential Insurance Co. of America, also condemn the exorbitant pricing and lack of competition for credit life, Mr. Hunter said.

Banks, finance companies and car dealers have won coverage for about 90 percent of all their loans. Sometimes they include the policy in ready-made loan documents, pressuring the consumer by saying: "You'd like credit life insurance, wouldn't you, to protect your family in the event you die," NICO and Consumer Federation said in their report.

''The only remedy is more effective state regulation and massive consumer education, it said.

State insurance departments, which regulate the U.S. insurance industry, should adopt fair pricing standards, requiring that 70 percent of premiums be paid out in claims.