| CREDIT INSURANCE
Q. What is credit insurance?
A. There are many different types of credit insurance. Credit
life insurance will pay off the
balance owed should you die. Credit accident and health insurance will
make the monthly
payments on the covered debt for the period of time that you cannot work
as a result of an
accident or illness. The coverage may not become available until after
you have been disabled
for four or more days. Occasionally, you may be offered unemployment insurance,
which would provide for payments on the covered debt during the period
that you become unemployed.
(Again, there may be a waiting period.)
Q. What requirements must creditors follow when they offer credit
insurance?
A. There are certain basic requirements that creditors must observe
in offering you any of these
forms of credit insurance:
• whether or not you accept the insurance will normally not be a
factor in the approval of your
loan, and that fact should be disclosed to you in writing; however, if
the credit insurance is
required, the premiums for the insurance must be included in the annual
percentage rate
(APR) that is disclosed to you;
• the cost of any credit insurance offered must be disclosed to
you in writing;
• you must give affirmative, written indication of your desire to
have such insurance. Usually
this means that you must check the "yes" box on the loan form
and sign that you want the
insurance.
Q. Do I have to have credit insurance?
A. No. If possible, you should decide ahead of time whether or
not you want credit insurance.
Once you are at the point of sale, you may be pressured to accept it,
just as you maybe pressured to buy a more expensive TV set or more options
on a car. Buying a car can be pretty exciting, but be sure that your decision
prevails when it comes to the credit insurance. Tell the salesperson whether
or not you want the insurance. If you are told to "sign here, here
and here," be sure to study the loan agreement to see that your wishes
on credit insurance have been observed. When you are at the final closing,
check again. If you have made arrangements over the phone for a loan,
and specified "no credit insurance," check the loan document
when you are at the lender's office to get the loan. If you had stated
that you did not want credit insurance but find that it is provided on
the loan agreement, don't sign it, even if the lender moans that the form
will have to be completely redone.
Q. Is credit insurance a good idea?
A. Whether or not you should buy any credit insurance is a personal
decision. Surveys of
consumers who have purchased credit insurance indicate that they have
done so because they did not have much other life insurance and did not
wish to leave their family with the obligation to pay off the debt. The
cost per $100 of credit insurance is definitely higher than the cost per
$100 of a term life insurance policy. However, if the credit life insurance
covers a $5,000 auto loan, the comparison is not very meaningful, since
most consumers cannot buy $5,000 term life
policies. The minimum amount purchasable is usually $50,000 or $100,000,
depending on the
insurer. Thus, you should expect to pay more per $100 of coverage for
credit life insurance than for a $50,000 term life insurance policy--just
as you expect to pay more per ounce for a glass of milk in a restaurant
than for a gallon of milk at the supermarket.
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