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An older gentleman needs reliable transportation to replace his 10 year old vehicle with over 100k miles. He can afford the payments, but doesn't want to burden his younger wife with payments she alone couldn't afford on top of other expenses in the event of his death, since her income will decrease.

Is purchashing credit life and disability insurance for a vehicle loan a good idea in this scenario? Are there any exemptions on such insurance as to pre-existing conditions or disabilities?

Getting additional life insurance isn't an option because once a person is 70 or 75+ years old, even if they are in good health, life insurance is astronomically priced. $20k for $100 vs $10 or whatever per month for the credit disability/life seems a no brainer in this situation. Is this logical thinking?

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  • Will she need the car if he dies, or could she get rid of it? Also, I be surprised if the rate was the same for someone in their 70s, have you confirmed this with whoever is offering the insurance? – DanTilkin Dec 19 '10 at 18:49
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    Tangentially: if this person is over 70 and retired, perhaps it's feasible, cheaper, and easier for them to withdraw money from their savings and pay cash for the car? It's highly unlikely their savings are earning a risk-adjusted rate higher than they would pay on a car loan. Unless perhaps all their income is from a defined-benefit fund (like a government pension) which gives no discretionary control of capital, and they have no personal savings. Or, I suppose, if the loan is offered at less than cost price. – poolie Dec 20 '10 at 13:01
  • Is it illegal to sell such insurance to the elderly? I am going to start a class action against Springleaf. – user39386 Feb 29 '16 at 17:19
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Be careful with credit life & disability insurance!

In addition to being expensive, companies that provide car loan (or mortgage) life & disability insurance often practice post-claim underwriting. Post-claim underwriting is a shady practice, where only after the insured becomes disabled or dies does the insurance company actually determine if they were insurable in the first place! In the worst case this can mean the claim is denied, and there is every incentive for the insurance company to uncover a reason to deny a claim.

Here's a short article about credit life insurance: CBC.ca - Marketplace - What is Credit Life Insurance? Excerpt:

[...]
Car dealers sometimes sell policies without asking health questions. But if the policy holder dies, and cause of death was related to a pre-existing medical condition, the policy may not pay out. This even applies if the policy holder had been to the doctor just for a consultation about an illness they had. [emphasis mine]

Car dealers can make large commissions selling this kind of insurance — from 15 to 48 percent per policy.
[...]

You can also watch CBC Marketplace's "In Denial" video segment here. The show principally refers to mortgage life & disability insurance, but the issues are similar with other loans that offer life & disability insurance.

One more article: Ellen Roseman - Don’t buy insurance from banks. Excerpt:

[...]
Only when you or your loved ones make a claim under the insurance do they contact your doctors and start checking into your medical history. Then, they may decide you don’t qualify for coverage — and in fact, you may never have qualified — despite having paid premiums for all these years.
[...]

For this reason, you may want to consider real life insurance, purchased from a life insurance company through a licensed life insurance agent. Real life insurance policies underwrites a policy up-front, and once approved, you are covered. Also consider a cheaper used car that won't be as much a burden should the worst occur.

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In general credit life/disability insurance is way over priced and a bad deal. Having read through a few policies in the past for credit cards I haven't seen a disqualification based on age before but each of these types of policies are going to be company and possibly product specific and you would really need to read through the entire policy before buying because they are full of gotchas (the companies have no intentions of paying out if they don't have to). On that same note you want something issued by the bank he is borrowing money from or a real insurance company not one of those fly by night car warranty companies. On the same note he should put a copy of the policy with his will and make sure that his wife and or the executer named in his will have a copy of the policy.

Does the wife need the car in the event of his passing? Assuming he is getting a good deal on the car and is not buying a luxury car (they depreciate faster) he is likely to only be upside down a few thousand dollars at most and should break even after a couple of years. If she doesn't need the car she could always sell it or allow the bank to come get it if he passes away.

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Insurance like this is always a ripoff, but may be an ok deal for someone otherwise uninsurable, provided that they don't have the caveats that Chris Rea mentioned. IMO, this is especially true if the wife needs the car and they live in a community property state.

The real answer to this question is for the person to purchase a reliable 5 year old car that he can actually afford. Even if he had to borrow for it, the ability to pay it off quickly and avoid expensive insurance payments is probably worth it.

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