What is Credit Life and Credit Disability Insurance?
Credit life and disability insurance are optional products offered by car dealerships and lending institutions to pay off your auto loan in the case of death or disability.
These types of additional insurance products are optional to the consumer and are not required when applying for a loan. Do not let anyone force you into buying credit life or disability products. It's illegal for anyone to tell you they're required to purchase to get you approved for a loan.
Car dealers are very persuasive when presenting credit life and disability insurance to a consumer. Making these products out to be something you can't live without. Dealers and their staff have been known to used low pressure scare tactics to get you to purchase them at the time of delivery.
It's your choice to buy credit life and disability insurance when purchasing a vehicle. There may be reasons you don't need the additional coverage. For example, if you already have a large life insurance policy in place, you don't need to pay for the additional coverage.
What you will find in this section:
- What is credit life insurance?
- Benefits of credit life insurance.
- Credit life insurance is not for everyone.
- What is disability insurance?
- Should you buy credit life and disability?
- Pros and cons of credit life and disability insurance.
- Why you may not consider credit life and disability.
- Other types of insurance coverage.
What is credit life and joint credit life insurance?
Credit Life or Joint Credit Life Insurance - Credit life insurance will pay off some or all of your car loan if you die. The word "Joint" means that there is more than one individual on the insurance policy.
The benefit of credit life insurance?
If you're covered by a credit life policy on your current car loan and you die before the loan is fully repaid to the lender. The policy will pay the remaining amount equal to the remaining balance of your car loan. Your family will not have to return the vehicle to the lender or lose any savings or assets trying to pay the remaining balance.
Credit life insurance is not for everyone.
Credit life policies can be very expensive for what they cover and the time period they're in effect. There are some circumstances that you may not want to purchase a credit life insurance policy. You should ask yourself certain questions and explore other alternatives before buying a credit life policy.
Insider Car Buying Tip
If you believe you need coverage, there may be cheaper ways to obtain insurance. For example, you may want to look into a life insurance policy. This will allow you to pay off more than just your car loan and may be less expensive than a credit life policy.
What is Credit Disability or Joint Disability Insurance?
Credit Disability Insurance and Joint Credit Disability Insurance - Credit disability insurance is a form of health insurance. This type of policy will make your car loan payments in the case you miss work because of being sick or disabled. The word "Joint" is used if there is more than one individual on the policy.
Careful with limitations or restrictions on a credit disability policy - There may be certain limitations or restrictions in the fine print of a credit disability policy. Some policies may only pay out a total dollar amount or certain number of payments while you're disabled.
You also need to be aware some disability coverage will not start paying out until you've been disabled for 14 days or more.
Normally more expensive than credit life insurance coverage - Statistics show that you have a better chance at becoming sick or disabled. This is why credit disability insurance is normally more expensive than credit life insurance and other insurance coverage.
Credit disability insurance is not for everyone - Credit disability policies can be very expensive for the time period and what they cover. There are some circumstances you may not want to purchase a disability insurance policy. You should ask yourself certain questions and explore other alternatives before buying a credit life policy.
Should You Buy Credit Life and Disability Insurance?
When financing a new or used car through and online financial institution, local bank, credit union or the car dealership. You will be offered an opportunity to purchase credit life and disability insurance along with several other products.
These additional products are not for everyone. How do you know if credit life and disability insurance is right for you. First you need to ask yourself a few questions and take a look at your own personal financial situation.
Many people cannot afford to pay cash when buying a new or used car. They must seek out a car loan from a bank, credit union or use a car dealerships financing avenues. Our advice is to only use a dealerships financing sources as a last resort. Going through a dealer's finance department unprepared can be financially devastating to you.
Read our section on how to obtain low interest car loans online to get the best interest rates. Having a pre-approved car loan in place before visiting a dealership will protect you from any car dealer finance scams and also provide you with a powerful negotiating tool.
When you apply for a car loan through a lender they may offer, even insist, you buy a credit life and disability insurance policy to help protect the loan you're applying for.
By law, car dealers cannot force you into purchasing
credit life and credit disability insurance coverage.
You may also be able purchase credit life and disability from another source. These companies can be very persuasive in how they present these insurance policies at time of purchase. If you don't want one, listen to their presentations and politely decline.
Pros and Cons of Credit Life and Disability Insurance
As I stated before, credit life and disability insurance isn't for everybody. Below is a pros and cons list to help you decide if it's right for you.
Pros of credit life and disability insurance coverage.
- When purchasing credit life and disability. It can be included with your car loan so you don't have to come up with a large amount of money up front.
- Peace of mind knowing that credit life will pay off your car loan in case of your death and in the case of a temporary or permanent disability the other will make your car payments.
- In the case of death or disability you will not have to worry about adding extra strain on your family having to make payments on your car loan.
- You're protected from losing assets and savings if you cannot repay your car loan due to illness, death or being disabled.
Cons of credit life and disability insurance coverage.
- These types of insurance coverage are more expensive than taking out a separate decreasing term life insurance or disability policy.
- The lender is the beneficiary on the policy, not anyone in your family.
- If you choose to roll your policies into your car loan. You will pay additional interest on the original amounts.
- You're essentially paying for added protection for the lender in the case you are unable to pay the loan off.
- Credit life and disability insurance normally doesn't provide coverage for individuals over 65 years old.
- Most coverage will not pay on pre-existing medical conditions. Read the fine print, normally health problems that have been diagnosed or treated within 6 months of applying.
- Some disability policies will not pay out if don't work more than 30+ hours a week and will not pay benefits unless you're disabled for more than 14 days or more.
Your policy is a binding contract between you and the insurance company. Before you sign anything READ IT CAREFULLY! Your policy will explain when your coverage starts, how it works, what's covered and more importantly, what's not covered.
If you don't understand something, have your agent explain it until you do. No question is a stupid question, do not sign anything until you absolutely understand what you're signing.
Why You May not Consider Credit Life and Disability
If you already have a life insurance policy in place - If you currently have a large life insurance policy in place you may choose to decline purchasing a credit life and disability insurance policy. The life insurance you currently have in place may be more than enough funds at payout to pay off your car loan if anything was to happen to you.
If your younger in life you may want to look at cheaper insurance options - If you are younger in life and like what credit life and disability does for you. You may want to look into cheaper and more affordable options. Purchasing a decreasing term policy through your personal insurance company will normally cover any requirements that your lender has for protecting their loan investment.
How's your health - If you're choosing to purchase credit life and disability insurance. Always take time to read the fine print. Not only being over-priced and very expensive..Companies that provide automobile credit life and disability insurance normally practice post claim underwriting. Post-claim underwriting is a suspicious practice and a very grey area.
A car dealer will not ask any qualifying health questions when trying to sell the policy. It's the assumed responsibility of the buyer to ask questions about any pre-existing medical clauses or stipulations included with the policy. If the policy holder becomes disabled, injured or dies within the policies time frame. The insurance company may then determine if the person fell victim to a pre-existing medical condition and not pay out on the policy.
For example, you buy a credit life policy on a new car and then a year later have a heart attack that causes death. The insurance company finds that you went to visit a doctor about chest pains three months prior to buying your insurance policy and determines you had a pre-existing medical condition. In the fine print of your policy clearly states, the insurance policy will not pay out due to death from a pre-existing medical condition within six months of policy purchase.
Car Buying Tip - Credit life and disability insurance is one of the many products sold in a car dealerships finance department. These products have very high profit margins. If you're looking to purchase a credit life and disability policy from a car dealer. Ask the finance manager what the total price of the policy is (not the payments). Read the fine print and ask what's covered and absolutely ask what is NOT COVERED.
If everything looks good and you're wanting to purchase the policy tell the manager you're willing to pay $50 over the policies cost to the dealer. Have the manager show you the cost sheet and have him show you it matches the policy presented to you. A finance manager will have no problem selling you a policy because they get paid not only commission but also a bonus for how many policies sold. If they won't discount it for you, it's their loss.
Other Types of Available Credit Insurance Coverage
There are several other types of credit insurance that may or may not be offered by financial institutions or car dealerships in their finance departments.
Insurance companies providing these products have become very creative when it comes to what's going on within the world at any given time.
Other Types of Credit Insurance Coverage - Insurance companies can get very creative when offering different products to protect you from a life event. Most of the credit insurance policies offered are very expensive for what they cover and you most likely already have coverage through your own personal insurance.
Credit property insurance coverage - This form of insurance will only cover the property (vehicle) that you're financing. If you already have renter's insurance or a homeowner policy, your financed item will already be covered. You should avoid buying credit property insurance.
How to a Pre-approved Low Interest Car Loan Online Before Contacting a Car Dealership
Credit unemployment insurance coverage - Credit unemployment coverage is a very expensive form of credit insurance. Car dealers are very good at using emotional scare tactics to get you to buy this type of credit insurance. This form of insurance will make limited payments on your car loan if you become involuntarily unemployed.
The bottom line when it comes to other types of credit insurance coverage - Insurance companies are always looking to create a new way to make money and sending these new insurance policies out to sell the general public. If you're presented with any type of credit insurance coverage, make sure that your personal insurance coverage does not already have you protected.
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My Recommended Auto Insurance Sites
USAA and esurance are the quickest way to see what insurance coverage will cost you on the vehicle you want to buy. These online sites will provide you with free, no-obligation quotes and the prices are normally pretty good. You can also use these quotes to negotiate an even better price with a dealership.
Share Your Tips - If you have any credit life or disability insurance tips that will help other car buyers save money. Please tell us about it in the comments below, so we can share it with everyone.
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