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What is credit insurance for an auto loan?

Credit insurance is optional insurance that is designed to make payments to your lender if you die, lose your job, or become disabled. This insurance is optional.

When you are financing a vehicle, you might be offered credit insurance too. Before you decide to buy it, think about your choices and ask about the cost.

This type of insurance is one of several optional add-on products, including extended warranties and GAP insurance, that are not required and whose price can be negotiated. Adding credit insurance will increase your loan amount, which also increases the amount of interest you pay over the life of your loan. The products often have eligibility restrictions and based on a consumer’s individual circumstances, may not provide value.

Types of credit insurance

If you’re considering credit insurance, make sure you understand the terms of the policy being offered. There are four main types of credit insurance:

  • Credit life insurance – This pays off all or some of your loan if you die.
  • Credit disability insurance – Also called accident and health insurance, this type of insurance makes payments on the loan if you become ill or injured and can't work.
  • Involuntary unemployment insurance – Also called involuntary loss of income insurance. This insurance will make your loan payments if you lose your job due to no fault of your own, such as a layoff.
  • Credit property insurance – This type of insurance covers your vehicle if it is stolen or destroyed in an accident or natural disaster. This type of insurance generally pays you the value of your vehicle or the balance of your loan, whichever is less. In general, this type of protection is included as part of your regular automobile insurance policy, so cost comparisons can be especially important when considering acquiring separate credit property insurance.

You have the right to cancel these credit insurance products at any time and reduce your costs

Also, you may be entitled to a refund if you sell, refinance, or prepay your auto loan. If you do not have your paperwork, check with your lender, the provider, or the dealer you bought the car from.

If a lender tells you that you'll only get the loan if you buy the optional credit insurance, you can submit a complaint to the CFPB, your state attorney general , your state insurance commissioner , or the Federal Trade Commission .

Know what is negotiable

Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.

Find out more about auto loan negotiation