Loan Insurance
Many car companies and lending institutions will offer you loan insurance on your used car loan. On the face of it, this seems very inexpensive. However, before agreeing to the extra few dollars a month, consider the following:
Loan insurance covers only the amount of money you owe the lending institution. In other words, let's say you finance $20,000 and you purchase insurance for about $20 per month over a three-year life of the loan. If you die the first month, the $20 will pay off the entire $20,000. However, if you die in the last month of the loan the insurance will pay only what's owned, i.e., the last month's payment.
Consider this: Instead of buying loan insurance purchased level term for the same $10 per month. At rates quoted for a person 40 years of age, $20 will buy you $20,000 of level term. With this insurance, whether you die in the first month or after the last month of payments, you get all $20,000. Now while we recommend that for peace of mind you cover your loan with insurance, why not put your money where it will return the most cash in the event of an untimely death?
Accident and Health Insurance
If you're in poor health and feel that you can't qualify for other loan programs because of your age or current health status, the A&H may be of some value. However, if you're in good health and have enough existing insurance, take a long look at this type of policy. Generally the only ones who benefit are the sellers.
While a lending institution can require you to cover your loan with insurance, they cannot, in most states, require that you buy the insurance from them. What you can do is assign the lending institution a current insurance policy purchased elsewhere to cover the loan. You probably should consult your insurance agent for details and for requirements as they apply in your state.
