Credit Insurance For Auto Loans: Which Companies Offer It?

Credit insurance is an optional insurance policy offered by lenders and creditors to cover your loan or credit card payments if you cannot pay due to unemployment, illness, disability or death. It is not a requirement to get a loan or credit card. When buying a car, you may be offered credit insurance by the finance and insurance manager at the dealership. This type of insurance is also offered by banks, credit unions, online lenders, captive financing lenders, and buy here, pay here (BHPH) dealerships.

Credit life insurance

The key feature of credit life insurance is that it pays off the lender directly, rather than providing money to your family or beneficiaries. The face value of the policy decreases over time as you pay off your loan, and the policy typically lasts only for the life of the loan. This means that once the loan is fully repaid, the credit life insurance policy ends and does not provide any further coverage.

One advantage of credit life insurance is that it often has less stringent health screening requirements and may not require a medical exam, making it an option for individuals who cannot qualify for traditional life insurance due to health reasons. Additionally, it can provide peace of mind by protecting a co-signer on the loan from having to repay the debt in the event of your death.

However, it is important to note that credit life insurance primarily benefits the lender, and there may be more cost-effective alternatives, such as increasing the coverage of an existing life insurance policy or purchasing term life insurance. Before making a decision, it is recommended to consult a financial professional to review your insurance options and determine if credit life insurance is suitable for your specific circumstances.

Credit disability insurance

The cost of credit disability insurance is typically based on the initial loan balance, and it is added to the amount financed, resulting in an increased monthly car payment. This type of insurance is usually more expensive than a standalone individual disability insurance policy, and interest is charged on the cost of the premium every month. Additionally, some policies may not cover pre-existing conditions or have waiting periods before benefits begin.

Before purchasing credit disability insurance, it is important to consider your financial situation and explore alternative options. You may already have disability coverage or be eligible for it through your employer. It is also worth noting that credit disability insurance does not provide coverage for individuals over 65, and most policies do not cover pre-existing medical conditions.

While credit disability insurance can provide peace of mind, it is not a requirement for an auto loan and may not be necessary for everyone. It is important to carefully review the terms and conditions of the policy, including any limitations or restrictions, before making a decision.

Involuntary unemployment insurance

To qualify for involuntary unemployment insurance, you generally need to be employed and working a minimum number of hours per week. For example, in most states, you must be working at least 30 hours per week to be eligible to purchase this type of insurance. Additionally, self-employed individuals and independent contractors are typically not eligible for involuntary unemployment insurance coverage.

Credit property insurance

If you're considering credit property insurance, be sure to shop around and compare the cost to that of other types of insurance. Additionally, make sure you understand all the details of the policy, including any waiting periods or exclusions.

Credit insurance is designed to protect you from missed payments on a loan in the event of unemployment, disability, or death. While it can provide peace of mind, it's important to carefully weigh the costs and benefits before making a decision.

Debt protection

Before purchasing debt protection, it is important to consider the following:

• The premium: Understand the cost of the premium and whether it will be financed as part of the loan, potentially increasing your loan amount and the interest you pay. Ask if you can pay the premium monthly instead of financing it as part of the loan.
• The benefits: Calculate the loan payment minus the credit insurance to understand the benefit you are receiving. Ask if the insurance covers the full length and amount of the loan.
• Exclusions and limitations: Understand what is not covered by the policy and if there are any waiting periods before the coverage becomes effective.
• Cancellation policy: Ask if you can cancel the policy and receive a refund. Understand if there are any penalties involved.
• Alternative insurance: Check if you have other insurance policies that might eliminate the need for debt protection. For example, a term life insurance policy would provide benefits in the event of your death, and your employer may offer disability coverage.

When considering debt protection, it is recommended to purchase these products through a credit union or bank, where rates may be lower. Compare any dealership price quotes and terms to ensure you are getting the best deal for comparable coverage. Additionally, federal law prohibits lenders from denying credit if you decline a debt protection offer, so you have the right to walk away and consider your options without pressure.

Frequently asked questions