What is credit life insurance and should you get it when you get a bad credit car loan?

What is credit life insurance?

Here at Auto Credit Express, we occasionally have to answer questions about credit life insurance. This might be a good time to explain it. Credit life insurance is a form of term life insurance. Term insurance refers to an insurance policy that is in force for a fixed period of time and cannot be renewed. It is also a form of life insurance that builds no cash value. In addition to being a term life policy, credit life insurance is a decreasing term policy. This means that the policy is designed to cover the amount of the loan. As the loan is paid off, the amount owed decreases and the amount of life insurance also decreases to match the loan balance.

How you pay for it

When you buy credit life insurance from a car dealer, the amount of the insurance is added to the finance contract and you pay for it as part of your monthly car payment. Because it is part of the finance contract, you are paying interest on the insurance premium as well as the car.

Should you get credit life insurance?

That is a decision that is entirely up to you. Here are the facts:

You should get it because:

1. It will pay off your car if you should die before the contract is paid off.
2. The payment is added in and becomes part of your car payment, so there’s no separate bill to pay.
3. Your family won’t be saddled with loan payments if you die before the car is paid off.

You shouldn’t get it because:

1. Generally speaking, credit life insurance is more expensive than separate term life insurance.
2. In addition to paying the insurance premium, you are also paying interest on the insurance premium.
3. If you are single and the loan isn’t paid off, your family has no liability.

The Bottom Line

Whether or not you take credit life insurance is a decision that you will have to make. If you have a family and are worried that they might not be able to make payments on your car if you die, you might want to look at the costs of term life insurance before you sign on the dotted line for credit life. For more information on car buying and bad credit, visit our web site at www.autocreditexpress.com. We hope to see you “on the road” to better credit.