We all know the value of insuring our home, life and vehicles. But have you ever considered insuring your car loan in case you’re unable to make the payments? Buying a car is the second largest purchase most of us will make in our lifetime, following buying a house.
Auto Loan Insurance, or “credit insurance,” covers the payments on your vehicle loan in an emergency or an unexpected life event. There are five common types of credit insurance:
Credit Life Insurance pays off all or some of your loan if you die. Life insurance protects you and your lender, and often you will find that a rate discount is given if purchased. Most people carry life insurance through their employer, which can be used to pay off your mortgage, college tuition, and every day bills, as well as other loans. Unlike regular life insurance, Credit Life Insurance doesn’t require you to have a medical exam for coverage. By making this purchase, if someone listed on the financing passes away, the loan is usually paid off in full.
Credit Disability Insurance covers your vehicle loan payments if you’re ill or injured and can’t work (per doctor’s orders). In most cases, credit life and credit disability insurance are offered as a package from a lender, but you can purchase them individually.
Involuntary Unemployment/Loss of Income Insurance covers your vehicle loan payments if you are laid off.
Credit Property Insurance protects your vehicle loan if your car is stolen or destroyed by an accident or natural disaster.
GAP Insurance adds more protection to your auto loan policy. It will pay the difference between the balance of a lease or loan due on a vehicle if you’re in an accident and your vehicle is considered a covered total loss. On auto loans, insurance companies value cars based on a high retail value, clean loan value, and rough condition value. In the past, insurance companies would pay high to clean loan value. However, in today’s market, the low value is mostly paid. GAP insurance is one of the cheapest ways to protect your loan, costing on average about $5 per month.
If you decide credit insurance is right for you, the following questions can help you find the right policy and provider:
- How much is the insurance premium? Will it be folded into my vehicle loan payments?
- Will this policy cover the entire amount of the loan or just a portion of it?
- Is the policy effective immediately or is there a waiting period?
- Is there a cancellation policy? If so, what are the rules around it?
Most lenders (car dealerships and credit unions) offer credit insurance products once you’re approved for a loan, but don’t feel pressured to take them. Do your homework and make sure each option is right for you.
To learn more about the credit insurance products available at Gulf Coast Educators, you can contact any of our lending team members by calling 281-487-9333.
Information is for informational purposes only and is not intended to provide legal or financial advice. The views expressed are those of the author.
SOURCES:
- https://www.federalreserve.gov/econresdata/2016-economic-well-being-of-us-households-in-2015-Automobile-Purchase-Decisions-and-Auto-Lending.htm
- http://www.zerohedge.com/news/2017-02-07/over-25-trillion-us-student-and-auto-loans-hit-new-record-high
- https://www.consumerfinance.gov/askcfpb/799/my-dealer-offered-me-credit-insurance-what-it.html