What is credit life insurance on a car?

FREE Car Insurance Comparison

 Secured with SHA-256 Encryption

Compare quotes from the top car insurance companies and save!

Key takeaways...
  • When purchasing a car, most dealership financial managers will try to convince you to incorporate a credit life insurance coverage on the auto loan
  • Car credit life insurance will pay off your auto loan in case of death, loss of income, or disability
  • There are different types of credit life insurance on a car, so pick one that suits your needs if you decide to purchase a policy
  • It’s a decreasing term life insurance policy designed to protect the lender from financial loss in case the borrower passes away
  • Credit life insurance policies are usually sold by banks and do not fall under the necessary types of auto insurance coverage

Many U.S. citizens find it easier to finance their purchases when they set out to buy cars for recreational purposes or otherwise.

The best part of this method of purchase is that you can start enjoying your new car immediately while you continue to make monthly payments through appropriate installments.

But what happens in the event of unfortunate incidences such as death, disability, or if you lose your job and you can’t keep up with the monthly installments anymore?

That’s where the credit life insurance you took on the car comes in. In such cases, your policy will take care of the remaining amount of auto loan.

Compare car insurance quotes today to make sure you’re paying the best rate.

What is credit life insurance?

Popularly referred to as credit life in the world of financial management, credit life insurance is basically a term life insurance coverage incorporated into the auto loan financing contractual agreement. In reality, credit life insurance on a car benefits the lender.

Some states have enforced age restrictions on the borrowers who can or can’t purchase credit life insurance policies. The price of credit life insurance is not influenced by the policyholder’s FICO scores like other auto insurance policies in some US states.

Credit life insurance on a car is a term coverage meaning that the policy only covers a fixed period and cannot be renewed and doesn’t build any form of cash value so you can’t use it to obtain a loan.

Credit life insurance policy is a decreasing form of coverage which means that the coverage continually decreases to match the payable amount as you continue to reduce the total sum through monthly installments.

The payout sum covers the auto loan balance at any given time in the course of the loan repayment period.

Buying Credit Life Insurance Products on Your Car Loan

You are required to decide on whether you want to purchase a credit life insurance policy on your car before you sign the papers.

Take your time and ask around to see if there’s a way to incorporate credit life insurance into your auto insurance.

If there is, compare quotes from different insurance providers offering the product and pick the one that suits you. Typically, lenders will use amount financed as well as the initial loan balance to come up with your monthly installment.

FREE Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

 Secured with SHA-256 Encryption

Types of Credit Life Insurance

There are many forms of credit life insurance. Financial institutions differ in the types of credit life insurance coverage they offer. Here are the prevalent types of credit life insurance policies:

  • Credit life insurance covers all or part of your auto loan in the event of death
  • Credit involuntary unemployment pays your installments for a given number of months in when you lose your job
  • Credit disability pays your monthly installments for a specified number of months in case of sickness or disability

Eligibility Considerations

Standard life insurance factors such as age, medical conditions, income, as well as other underwriting issues are all considered to be eligible for credit life insurance.

Here are the most commonly used underwriting criteria:

  • Your average hourly work hours per week. Applicants with more than 30 hours are more likely to have their applications rejected.
  • Credit life insurance policies will not pay your loan if you die from a pre-existing medical condition.
  • If you are 65 years old or more, you will not be approved for reapplication.
  • If you are going to turn 70 within the term of your coverage, your application will not be accepted.
  • Standard policy underwriting factors apply for credit life insurance coverage.

The Cost of Credit Life Insurance Policy

A credit life insurance policy can be shockingly expensive. Many people would expect the coverage to be a lot cheaper given that you will be buying a car and an insurance policy at the same time, but no.

Over time, the coverage could add up to about $4,000 to the cost of buying your car.

Lenders will use typical life insurance risk prediction methods and a host of other factors to determine the level of risk involved. If the risk predictive models coupled with other factors place you in the high-risk category; your rates could go incredibly up.

Here are the common factors that may affect a person’s cost of credit life insurance:

  • The length of your loan term may increase or decrease your monthly rates. Longer loan terms tend to attract higher monthly credit insurance rates.
  • Your age at the time you got the car loan. Older individuals are more likely to get higher rates than younger healthy applicants.
  • The type of credit insurance you purchased.
  • The amount of outstanding debt as well as the initial loan amount.

Factors to Consider Before You Purchase a Policy

Think about your personal needs before you go out to purchase a credit life insurance policy. Here are a few factors to consider:

  • The details of the coverage, what’s covered and what’s not covered?
  • The amount of loan amount covered and for how long.
  • How do you pay the premium? Does it have to be a part of the loan?
  • Consider the full cost of the loan.

Purchasing a Credit Life Insurance Policy comes with a unique set of merits and demerits. It can offer an extra layer of protection that supplements your current disability and life insurance policies.

Do your own research to determine viable options and compare quotes from different lenders/ insurers to ensure that you get the best deal. Enter your zip code below to compare now.

FREE Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

 Secured with SHA-256 Encryption

[0-9]
[0-9]