What is credit life insurance on cars?

Credit life insurance on cars pays off the loan if the owner dies or can't work, and it's usually offered by lenders. Read on to find out if car loan life insurance is right for you.

Free Car Insurance Comparison

secured lock Secured with SHA-256 Encryption

A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

Full Bio →

Written by Laura Berry
Former Insurance Agent Laura Berry

Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

Full Bio →

Reviewed by Joel Ohman
Founder & CFP® Joel Ohman

UPDATED: Jun 15, 2022

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident car insurance decisions. Comparison shopping should be easy. We are not affiliated with any one car insurance company and cannot guarantee quotes from any single company.

Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from top car companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

Here's what you need to know...

  • Credit life insurance is designed to pay off your car loan in case of job loss, injury, or death
  • While you may be strongly encouraged to buy it, it is not required
  • Instead of credit life insurance, you may opt to get a standard life insurance policy

After doing hours of research and test driving several cars, you are ready to buy a new or new-to-you vehicle from a local dealership. Because you’re not paying cash for the car, you’re working with the dealership’s loan department to come up with a payment plan. As a representative goes over your paperwork, you may be surprised to hear them suggest something called “credit life insurance.” 

If you are unsure what this term means or why it is being suggested as part of your loan, you are in the right place. Keep reading to learn more about this specialized type of life insurance, and find out how to get cheaper insurance coverage for your second car.

Why get credit life insurance on cars?

Since your lender or the finance department of a car dealership aren’t insurance companies, you may understandably be confused about what credit life insurance is and why it is being suggested. 

Basically, credit life insurance on cars is a policy that a borrower can take out to help pay off the vehicle loan if something happens and they cannot pay off the remaining loan balance. Covered events can include losing your job, sustaining injuries that prevent you from working, or passing away. 

While you may think that credit life insurance for car loans is there to help you in times of financial hardship, it’s really a form of auto loan life insurance that ensures that the car dealership will get its money. It also prevents co-borrowers or heirs from being saddled with your car debt.

Free Car Insurance Comparison

Enter your ZIP code below to view companies that have cheap car insurance rates.

secured lock Secured with SHA-256 Encryption

How can I get car loan life insurance?

You will probably have the option to buy a credit life policy for your car loan at the dealership or whatever financial institution handles your loan. But you will still have to submit an application, which will need to be underwritten and approved.

Credit life insurance will only need to last for the length of the car loan, which is usually between four and six years. You can generally purchase credit life insurance in two ways: a single premium where the total amount is calculated and then added to your loan amount, or based on your outstanding monthly balance, where the credit life insurance amount varies based on how much you still owe. 

If you’re thinking of agreeing to credit life insurance for your car loan, it’s a good idea to ask plenty of questions and read the fine print carefully to be sure you are comfortable with the terms of the policy.

Can a lender add credit life insurance on cars without your permission?

A lender may strongly suggest that you need credit insurance on your auto loan, and you may be subjected to a somewhat morbid sales pitch as to why you should get it. But, while you are required to have full coverage on your car insurance when you still have a loan, it’s not necessary to carry credit life insurance. 

If you see that it was automatically added to your paperwork, don’t sign the contract. Instead, file a complaint with your state’s insurance commissioner.

Alternatives to Credit Life Insurance on Cars 

If you are concerned about qualifying for credit life insurance or worried you or your loved ones couldn’t pay off a loan if something happened to you, credit life insurance isn’t your only option. You may be able to bundle life insurance coverage with your existing car insurance policy. 

Many car insurance companies offer what is called death and dismemberment coverage which, as its name implies, is insurance to pay off your car in case of death or injury.

As a bonus, you will probably find that the rates for a similar amount of traditional life insurance are lower than what you’d pay for a credit life policy. If you do find that the quoted rate is too high, you can always research who the cheapest car insurance companies are and make the switch. 

Also, if you have a good nest egg saved that could cover a car loan, you may not even need credit life insurance or anything like it.

The Bottom Line on Credit Life Insurance for an Auto Loan

Buying a car should be a celebratory experience, not one that involves a financial officer describing a doom and gloom scenario and pressuring you to buy what is essentially death insurance on your car loan. When you understand credit life insurance and how it compares to other options, you’ll be in a better position to make the right choice for your financial situation.

Free Car Insurance Comparison

Enter your ZIP code below to view companies that have cheap car insurance rates.

secured lock Secured with SHA-256 Encryption