Credit Life Insurance For Auto Loans – Do You Really Need It?

credit life Insurance for auto loans
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Credit Life Insurance For Auto Loans

Are you looking to take out an auto loanAuto loan debt is higher than ever before, at $1.2 trillion in total, averaging at just under $18,000 per borrower. Before you take on some of that debt, you’ll need to make sure you go into it the smart way. When you buy a car, you’re likely offered lots of extra add-ons. It can be confusing to navigate which ones you need and which ones you don’t. One of the things offered is credit life insurance. The question is does one really need credit life insurance for auto loans.

credit life Insurance for auto loans

Read on to find out.

What is Credit Life Insurance?

Credit life insurance is a protection measure available to you when you take out an auto loan. In the event of the borrower’s death, it ensures the lender still receives the full amount.

Is it Mandatory?

It’s entirely your choice whether you want to buy credit life insurance for auto loans. It generally offered to you by the finance team at the dealership, but it’s not compulsory.

Who Benefits?

Credit life insurance is for the benefit of lender, rather than the borrower.

Do I Need to Take a Medical Exam?

Unlike regular life insurance, there is no medical exam required. This is because it’s not the individual who is being insured by the policy, but the loan itself.

How Much Does it Cost?

The cost of credit life insurance is influenced by many factors, which are then assessed to calculate risk.
The most important factor is the outstanding balance on the loan. Others include the length of the loan term, the type of credit and the age of the borrower. Of course, the higher the risk is, the higher the cost of insurance will be. 

calculator and insurance quote

Why You Don’t Need It

The idea of buying credit life insurance for an auto loan may not appeal to everyone.
For a start, some people may not want to take on an extra unnecessary expense. Most of all for something which set up to benefit the lender rather than themselves. Who could blame them?
Besides, the insurance becomes less beneficial over time as the loan pays off.
It is particularly unappealing to older borrowers, as it may not be worth it for them. This is because their protection will likely cancel before the loan pays off. 

The bottom line is there is no requirement by you to buy credit life insurance. Doing so doesn’t provide any added protection. Why? Because, unless your heir’s are on your auto loan, they won’t be responsible for paying it off anyway.

More Advice on Auto Loans

Credit life insurance isn’t necessary, but car insurance is. See our post on how to get car insurance quotes online to find the best deal for you.

You can also read our tips on new car loan financing to help you make the best decision when it comes to your auto loan.

If you any questions, be the first to shoot in the comments section below!

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  1. Hey Patrick,

    I have never heard of life insurance for car loans, of course I’ve only purchased two cars from dealers my whole life, but the whole thing just sounds like an extra add-on a dealer would want to throw in.

    Wouldn’t it be better to just have life insurance and your heir can just pay the car off with that money while also benefiting from left over money?

    • Hey Victor,

      Yep credit life insurance for auto loans is all dealer finance add on’s.

      If you have life insurance that should cover it.

      I wrote the post just to give my readers a heads up that it’s not necessary.

      If it helps you sleep better at night than one should buy it. However, it really is more to the advantage of the dealer than the borrower.

      Excellent comment.


  2. I was in the car business for a few years and I always hated when my customers would go into the finance office and be up sold.

    I know they offer some great products, but I did my best to be upfront and honest and I didn’t want the finance manager undoing all of my good work.

    I think that credit life insurance for auto loans is not worth it at all. I know I won’t care about my bills after I am gone.

    However; do you have a typical price range this type of insurance is offered for on let’s say a $25,000 vehicle?

    • Hi Nate,

      Looks to me like you have some first hand knowledge.

      I can understand you not wanting to loose the deal on the car after all your hard work with the customer.  I’ve heard of car buyers walking after they get hit in the finance room.

      Credit life insurance for auto loans may come in handy if you have a spouse or family member that is on the car note or needs to have access to the vehicle once you pass away. If it’s just you then it’s probably not a good investment.

      If you decide to take out a credit life insurance policy you could be paying anywhere from $180 – $200 dollar a month on $25,000 note amount. 

      A term life policy for the same amount (depending on age) would be much cheaper and could be used to payoff the auto loan.


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