When you go to close on your auto loan one of the optional products your loan officer may offer to you is credit insurance. There are basically two credit insurance products that are offered today. Below is a rough description of what they are and what they cover.
1) Credit Life- This product is basically life insurance that covers whatever the outstanding loan balance is in the event of your untimely death. Premiums for this type of insurance vary depending on the size of the loan. The borrower is allowed to name a beneficiary at the time of signing the paperwork. if for some reason during the loan duration you were to pass away that loan would be paid off in full and the beneficiary would receive a free and clear title to the vehicle. because there are very few restrictions to qualify for this insurance the premiums can be very expensive and are usually added on to your loan amount. if you elect to purchase this coverage your payment will increase and be more than if you elected not to purchase it.
2) Credit Disability Insurance- This product is basically disability insurance that covers the amount of your auto loan payment if you were to become sick or injured and unable to work. Again premiums on this type of insurance vary depending on the size of the loan and the elimination period before it starts. Most of these policies have a 7 day or 14 day elimination period. in the event that you become sick or injured and can?t work the payments will be made to the lender on your behalf until you go back to work or the loan is paid off whichever comes first. You do not have to be hospitalized but under a doctors care and there may be paperwork that your doctor will have to fill out to become eligible. these premiums can be expensive and are usually added to your loan amount which will increase you monthly payments.
It is important to note that these insurance products are completely optional and not a requirement to get approved for a loan. Borrowers should evaluate their own financial situation to determine if either of these insurance products are a benefit to them before they purchase.
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