Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Jun 14, 2019

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Important facts to know...

  • Keep in mind that credit life insurance is different from a standard life insurance policy
  • The main purpose of credit life insurance on a car is to pay off the outstanding loan balance for the car in the event that the policyholder dies with the loan unpaid
  • The person that really benefits from credit life insurance on a car is the lender or bank because that party is the one that is compensated in full for the remainder of the outstanding loan amount
  • Often times, standard life insurance is much more cost-effective than credit life insurance for a car loan if you are trying to make sure your beneficiaries are taken care of
  • Remember that the lender cannot require credit life insurance in order to take out a car loan


Credit life insurance for an auto loan is often confused with traditional life insurance coverage, but it works very differently.

If you have credit life insurance on a car loan, this means that the beneficiary you choose would be able to keep your car in the event that you still need to make payments when you die.

The lender gets the rest of the balance paid off in full. You should evaluate the cost of this coverage before deciding to get this optional coverage for a car loan.

Compare car insurance coverage and options by using our free comparison tool today!

How Credit Life Insurance on a Car Loan Works

Credit life insurance for an auto loan is a way to protect the creditor or lender of the loan. The premium for credit life insurance for an auto loan is paid by the policyholder.

If you take out this type of coverage when getting a car loan, it may be rolled into the monthly car loan payments.

One of the few reasons that it might actually make sense for you to pay for this optional insurance as part of a car loan is that you are an older driver taking out a loan on a relatively new vehicle.

If you would like your beneficiary to be able to keep your vehicle without having to make payments, then you might want to weigh the cost of credit life insurance for a car loan.

If, however, you are financing an older car or a car that depreciates quickly in value, it may not make as much sense for you to get credit life insurance for a car loan because the car will not be worth as much anyway.

If you do decide to take out credit life insurance for a car loan, make sure to read the policy carefully, just as you would for any other type of coverage.

Also, make sure you understand the terms of the policy that explain how you would cancel credit life insurance for a car loan in the event that you decide it is no longer beneficial for you.

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Understanding the Cost of Credit Life Insurance for a Car Loan

You probably guessed that adding on credit life insurance to an auto loan makes it a bit more expensive. Before you spend this money, you want to make sure that you will actually benefit from having credit life insurance for an auto loan.

Critics of credit life insurance for an auto loan say that it is a relatively expensive form of coverage in light of the small potential for benefit for the policyholder or his beneficiary.

While it may be offered as an option by the lender, it is probably really only in the best interest of the lender for you to get credit life insurance for an auto loan.

According to the Federal Trade Commission, credit life insurance for an auto loan is not something that the lender should require you to get as a condition of taking out a car loan.

In fact, if you are told that you will only be allowed to take out a car loan if you purchase credit life insurance, you should probably contact your state department of insurance or the state insurance commissioner to report the lender.

Lender Requirements for Other Forms of Car Insurance Coverage

When you sign your car loan agreement, you should pay attention to the specific insurance requirements.

Often times, a lender will require that you maintain a certain amount of collision or comprehensive insurance so that the lender does not have to worry about its asset for the loan in the unfortunate circumstance of an auto accident.

Many times, you will notice that the premium payments for collision or comprehensive insurance are simply rolled into the monthly cost of the car loan.

When you finance a car, you need to consider the cost of required insurance coverage and how it will actually affect your monthly payments. This is an important consideration in making sure that you can afford the car you are purchasing.

The type of car you finance can also have an effect on your car insurance premium, so you may want to check with your agent when you are still deciding on which type of car to purchase.

Before you blindly accept the cost of collision or comprehensive insurance in a car loan, you have the right to look into the coverage that makes the most sense to you.

You get the right to choose your own car insurance company.

In addition, you may also decide that it makes sense for you to have more collision or comprehensive insurance than what is required as a minimum in your car loan agreement.

In this case, you should speak to an auto insurance agent about your specific needs and what discounts may be available to you in exploring insurance options.

Recap on Credit Life Insurance on a Car Loan

Credit life insurance for an auto loan is a way to make sure that the remaining balance of the car loan is paid off in the event that the policyholder dies while there is still a balance on the loan. This can benefit the lender, who gets paid in full for the car loan.

It may also benefit the beneficiary of the policyholder, who gets to keep the car after the death of the policyholder without having to make the remaining car loan payments.

Remember that credit life insurance for an auto loan is optional and may only make sense in very specific circumstances.

Compare your options today and see how much you could save on car insurance!