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Texas Auto Insurance for Financing

When you borrow money, make an installment purchase or obtain a credit card, you can count on being offered various kinds of insurance. It´s important to understand what they cover and what they cost before deciding whether to buy them.The types of insurance commonly offered to borrowers and credit card holders include:

  • Credit life, which pays off all or most of your loan if you die.
  • Credit disability, which normally makes your monthly loan payments while you are disabled by injury or illness.
  • Credit property, which replaces a financed item that is destroyed before the loan is paid off.
  • Involuntary unemployment insurance, which makes your payments if you lose your job.
  • "Gap" insurance, which pays the difference if your car is "totaled" and your loan balance exceeds the "actual cash value" reimbursement paid by the car insurance company.

Some credit card issuers bundle several coverages into a "credit protection" package that they promote to customers.The most aggressively offered coverages are credit life and disability insurance, which earn high commissions for the sellers, including auto dealers, banks, credit unions and furniture stores.

If you buy credit insurance, the premium goes on your loan, meaning you pay interest on it. On a $15,000, four-year, 7.75 percent interest loan, the premium would be $267 for credit life and $659 for the most common credit disability coverage, a total of $926. The total amount financed becomes $15,926, consisting of the loaned amount plus the credit insurance premiums. Financing the premiums increases the interest by $154 over the life of the loan.

Lenders rarely require credit insurance or other form of life insurance to assure payment of a loan if you die. When they do, they can´t legally make you buy it from them or from a particular insurance company.

If a salesperson or lender tells you insurance is required, ask to see the "truth in lending" statement on your loan agreement. If it says insurance is not required, ignore claims to the contrary. Another option is to find a lender, car dealer or retailer who won´t pressure you to buy unwanted insurance.

If life insurance is required, you can save money by assigning part of your existing life insurance policy to the lender instead of buying credit insurance. Your insurance agent or company representative can help with necessary paper work.

You can cancel a credit life and disability policy (unless the loan or charge agreement requires coverage) if you decide you don´t need it. You´re entitled to a full refund if you cancel in the first 15 days or a partial refund if you wait longer. The refund most likely will be credited to your loan balance and not paid directly to you.

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