Credit life & disability Insurance on vehicle loan for elderly buyer: Does it make sense?
An older gentleman needs reliable transportation to replace his 10 year old vehicle with over 100k miles. He can afford the payments, but doesn't want to burden his younger wife with payments she alone couldn't afford on top of other expenses in the event of his death, since her income will decrease.
Is purchashing credit life and disability insurance for a vehicle loan a good idea in this scenario? Are there any exemptions on such insurance as to pre-existing conditions or disabilities?
Getting additional life insurance isn't an option because once a person is 70 or 75+ years old, even if they are in good health, life insurance is astronomically priced. k for 0 vs or whatever per month for the credit disability/life seems a no brainer in this situation. Is this logical thinking?
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Insurance like this is always a ripoff, but may be an ok deal for someone otherwise uninsurable, provided that they don't have the caveats that Chris Rea mentioned. IMO, this is especially true if the wife needs the car and they live in a community property state.
The real answer to this question is for the person to purchase a reliable 5 year old car that he can actually afford. Even if he had to borrow for it, the ability to pay it off quickly and avoid expensive insurance payments is probably worth it.
Be careful with credit life & disability insurance!
In addition to being expensive, companies that provide car loan (or mortgage) life & disability insurance often practice post-claim underwriting. Post-claim underwriting is a shady practice, where only after the insured becomes disabled or dies does the insurance company actually determine if they were insurable in the first place! In the worst case this can mean the claim is denied, and there is every incentive for the insurance company to uncover a reason to deny a claim.
Here's a short article about credit life insurance: CBC.ca - Marketplace - What is Credit Life Insurance? Excerpt:
[...]
Car dealers sometimes sell policies
without asking health questions. But
if the policy holder dies, and cause
of death was related to a pre-existing
medical condition, the policy may not
pay out. This even applies if the
policy holder had been to the doctor
just for a consultation about an
illness they had. [emphasis mine]
Car dealers can make large commissions
selling this kind of insurance — from
15 to 48 percent per policy.
[...]
You can also watch CBC Marketplace's "In Denial" video segment here. The show principally refers to mortgage life & disability insurance, but the issues are similar with other loans that offer life & disability insurance.
One more article: Ellen Roseman - Don’t buy insurance from banks. Excerpt:
[...]
Only when you or your loved ones make
a claim under the insurance do they
contact your doctors and start
checking into your medical history.
Then, they may decide you don’t
qualify for coverage — and in fact,
you may never have qualified — despite
having paid premiums for all these
years.
[...]
For this reason, you may want to consider real life insurance, purchased from a life insurance company through a licensed life insurance agent. Real life insurance policies underwrites a policy up-front, and once approved, you are covered. Also consider a cheaper used car that won't be as much a burden should the worst occur.
In general credit life/disability insurance is way over priced and a bad deal. Having read through a few policies in the past for credit cards I haven't seen a disqualification based on age before but each of these types of policies are going to be company and possibly product specific and you would really need to read through the entire policy before buying because they are full of gotchas (the companies have no intentions of paying out if they don't have to). On that same note you want something issued by the bank he is borrowing money from or a real insurance company not one of those fly by night car warranty companies. On the same note he should put a copy of the policy with his will and make sure that his wife and or the executer named in his will have a copy of the policy.
Does the wife need the car in the event of his passing? Assuming he is getting a good deal on the car and is not buying a luxury car (they depreciate faster) he is likely to only be upside down a few thousand dollars at most and should break even after a couple of years. If she doesn't need the car she could always sell it or allow the bank to come get it if he passes away.
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