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Is it worth the extra $10 or so that would be added to a car loan in order to get credit life insurance and credit disability insurance? For a relatively young person looking to get the most out of their monthly car payment, it seems that it would not be worthwhile.

If you're wondering, this "insurance" coverage is usually offered when applying for an auto loan. If you die before payments have been completed, full ownership of the car would be transferred to a beneficiary that you name, and they would not have to make any of the remaining payments. If you become sick/disabled and unable to work, the insurance would cover car payments until you are able to resume working and paying. The idea appears to be to protect your investment already put into the vehicle instead of losing ownership in the event illness or death (transfer of ownership).

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6 Answers

up vote 7 down vote accepted

That's expensive for the insurance you get, and it could only be good for that particular debt, not the other expenses you incur.

You'll be better off thinking carefully about how much life and/or disability insurance you'll need for all of your obligations, and covering yourself that way.

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Credit life insurance is a bad deal unless your health makes it impossible to get coverage otherwise. Even in that case, unless you could convert the policy into a regular policy after the car is done, it still doesn't make much sense for a loan as short in duration as a car loan.

Also, $10 a month is highway robbery -- I think I pay $8/mo for $400k in term insurance.

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If I got sick and couldn't work, the last thing on my mind would be to protect the lender on a car loan. Be sure you are covered for disability at work, if you wish, don't buy this kind of insurance piecemeal. Keep in mind, your auto loan balance will decrease (fast, I hope) and buying this insurance is as expensive a policy as you can buy. It's one step worse than Mortgage insurance and nearly as bad as buying accident insurance for individual plane flights.

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No. Why would you pay to insure the lender's loan to you. If they want insurance to make sure they get their money back, I think they should buy it on their own.

Especially if you die; no way should you be paying off your loans from beyond the grave.

The lender has risk, such as you dying or defaulting, but that is why they checked your credit score and are charging your interest.

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I think you missed the point. This isn't to protect the lender's loan, but the buyer's investment: if you die, a named beneficiary would receive full ownership of the car with no payments to cover. When sick or disabled and unable to work, payments are covered for you and you do not loose the car. That said, I do agree that it is a bad deal –  SturdyErde Oct 11 '10 at 11:47
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I have never taken a loan with a named beneficiary. Again, that seems like a scheme that benefits the lender far more than it would benefit me. –  MrChrister Oct 11 '10 at 15:08
    
The loan doesn't have a named beneficiary. The optional personal insurance for the loan does: if you die before you have finished paying off the loan, your beneficiary would receive full ownership of the car without having to make a single remaining loan payment. –  SturdyErde Oct 13 '10 at 19:29
    
Ahh. Still seems like a bad deal, but I understand the proposed use of the product better now. –  MrChrister Oct 13 '10 at 19:34
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MrChrister You might not pay off your car loans from the grave, but the executor of your last will and testament, or the court-appointed administrator should you die intestate, will have to pay off the loan from your estate (leaving less for your grieving widow and children), or have the car repossessed. Please consider just deleting your answer; it is unworthy of a moderator of money.SE. –  Dilip Sarwate Feb 27 '13 at 3:59
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As a 58 yr old able bodied male, I had never taken this insurance. 3 years ago I refinanced my vehicle through my credit union and they added the Disability insurance. As it was only a few dollars a month, I left it on the loan rather than redoing the paperwork. 18 months ago, I was diagnosed with Cardiac artery disease among numerous other medical problems. I have had 3 major surgeries and am now on Social Security Disability. The disability insurance has paid approximately 7000.00 in payments. Is this insurance a good deal? Just like any other insurance. Only if you need it.

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I bought this insurance with my new Landrover and regretted it for a couple of years till I got in accident and was off for about six months. The insurance paid for it's self and I am still thankful to this day, $800 a month payments for six months, you never know what misfortune is going to befall you in this life. The insurance company is there to make money by playing the odds, the small payout for me is nothing, but for me it was a great help. So, as your self if you were disabled would this help you or could you take the loss and make it through.

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protected by John Bensin Sep 20 '13 at 18:47

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