Credit life and disability insurance is a personal choice when applying for car loans with bad credit
Not where you want to be
Many of the decisions that you have to make when purchasing a new or used car are not always as cut and dried as deciding on window etching (don't), whether you have good credit or you plan on financing with auto loans for bad credit. We should know, because here at Auto Credit Express we've been working with both good credit and credit-challenged car buyers for over two decades. We've even developed a web site so that we can take applications and match applicants to local dealers that specialize in a broad range of customer credit. This way, every customer has the best chance of getting approved for a car loan, even if that means a bad credit car loan.
We did this because those consumers with the most serious credit problems often experience frustration and embarrassment when shopping for a car and applying for financing. In addition, getting turned down at a car dealer can lead many buyers to a tote the note or we finance anyone car lot, a choice that usually won't improve their car credit and a finance situation that often leads to repossession.
But even when a person who is credit-challenged decides to apply for car loans with bad credit and gets approved, there are often other choices that have to be made, not the least of which is deciding whether or not to sign up for credit life and/or credit disability insurance.
Credit life insurance is a form of term insurance. The phrase “term insurance” refers to an insurance policy that is in force for a fixed period of time and cannot be renewed – at least not at the same monthly premium. Unlike a whole life policy, term insurance is also a form of life insurance that builds no cash value.
In addition to being a form of term insurance, credit life insurance, as it applies to an auto loan, is also considered to be a “decreasing” term policy. This means that payout on the policy is designed to match the loan balance throughout the loan term. As the loan is paid off, the loan balance decreases and the amount of insurance covering the loan also decreases to match the amount owed.
Also known as accident and health insurance, credit disability insurance is designed to provide funds for your car payments if you should become disabled to the point where you are unable to work and takes effect once you are disabled by sickness or injury.
Depending on the type of policy, the waiting period for benefits begins anywhere from 14 days to up to 90 days from the date your disability begins. Once you have satisfied the waiting period, the policy begins making your car payment. In most cases, the benefit is retroactive to the first day of disability, although this is not always the case. In addition, you do not need to be permanently disabled in order to receive benefits from these policies.
How you pay for these policies
If you decide to buy either credit life or credit disability insurance (or both), you usually have to do it at the time you sign up for your car loan. The monthly premiums are based on the original loan balance and their added cost is included in your monthly car payment. Since these payments are included in your car payment and not paid in a lump sum, you end up paying interest on the insurance premiums as well as on the car.
Are they worth it?
You really have to decide if they're worth the cost. Here are a few of the facts:
1. Peace of mind – one will pay off your car if you should die before the loan contract is paid off, while the other will make your car payments for you if you become either temporarily or permanently disabled
2. A single payment – the insurance payment becomes part of your monthly car payment, so there is no separate insurance premium to pay.
3. If the loan is covered by credit life insurance, your estate won't be responsible for the loan balance or any loan payments if you die before the car is paid off. Likewise, if you have credit disability insurance, you don't have to worry about making your car payments if you get sick or hurt and are unable to work.
1. In most cases, these policies are more expensive than if you were to take out a separate term life insurance or disability insurance policy for the loan amount.
2. You are paying interest on these insurance premiums every month – something you wouldn't have to do if you had separate insurance policies.
3. In the case of credit life insurance, if there is no co-signer on the loan and you are single, your family would not be liable for the loan balance.
The Bottom Line
The decision to carry credit life insurance and/or credit disability insurance on your loan contract is one that you will have to make. If you have a family, the loan has a cosigner, and your family might need the car if you die, you might want to first look at the costs of a term life policy before you sign on the dotted line for credit life insurance as a part of your car loan.
At the same time, if a disability would seriously hinder your ability to keep your car, you might want to weigh the pros and cons of a disability policy tied to your car loan versus paying for a separate disability insurance policy.
At Auto Credit Express we have helped thousands of people with bad credit buy cars and reestablish their credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans.
So if you're serious about getting your credit back on track, why not begin a new chapter in your life by filling out our bad credit car loan application now.