Car loan insurance

Car loan insurance is more commonly called credit insurance. Credit insurance isn’t exclusive to car loans and you can get it on just about any type of loan or financing you have. The purpose of this insurance is to help you pay back your loan in situations where you’re no longer able to work or make payments on your own.

When you’re applying for a car loan, you may be asked if you want to buy car loan insurance to protect your investment. Just be aware that this type of insurance isn’t mandatory and often isn’t worth the cost, so proceed with caution.

How does car loan insurance work?

Car loan insurance, also known as credit insurance, is designed to help you pay off your loan in the event that you lose your job, become critically ill, get seriously injured or die in an accident. The purpose of car loan insurance is to give you peace of mind that you and your loved ones won’t be burdened with your car loan debt if you can no longer work for an eligible reason.

This type of insurance is never mandatory and any lender that claims it is should be avoided at all costs. That said, it is sold as a legitimate insurance product by many banks and lenders. But it often comes with tons of exclusions and restrictions, and for this reason may not be worth the extra cost.

Is there another way to protect my car loan?

Before you sign up for auto loan insurance, you may want to check that your life, health or auto insurance doesn’t offer similar benefits. Many of these policies will give you disability payments or a portion of your former income if you get injured in an accident or develop a critical illness.

Even if this type of insurance isn’t designed to make your payments directly, it will still give you enough money to stay afloat during difficult times. This means you won’t have to shell out more money for car loan insurance to get the same level of protection.

How can I sign up for car loan insurance?

You can usually get auto loan insurance directly from your car dealer, though this may not be the best choice. If you’re interested in signing up, it helps to compare several insurance providers at once to find the best rates. As a starting point, you may want to request quotes from several private insurers, credit unions and all of Canada’s Big Five banks.

You might also be limited to getting loan insurance from your lender, though you aren’t required to sign up even if they pressure you. Once you’ve signed up, you’ll usually be required to pay a recurring premium when your loan payment is due. You may also be able to make a one-time payment that will typically come out of your account as soon as your loan is approved.

What types of car loan insurance can I get?

There are various types of car loan insurance you can get to pay off your loan if you’re unable to work. The following forms of car loan insurance are the most common:

• Credit life insurance. This type of insurance will pay off your car loan if you die. This ensures that your family isn’t stuck footing the bill for an expensive vehicle.
• Credit disability insurance. With this insurance, your loan will be paid off if you’re injured in a serious accident or become critically ill and can no longer work.
• Credit unemployment insurance. Unemployment insurance helps you make your car loan payments if you lose your job through no fault of your own.

How much does car loan insurance cost?

Factors that may affect the cost of coverage include:

• Personal factors. You’ll usually pay different amounts based on personal factors such as your gender, occupation, health condition and location. Different provinces also enforce different regulations to limit how much your lender can charge you.
• Loan term and amount. You’ll usually need to pay higher premiums if you borrow a higher amount of money. It will also cost you more to insure a loan with a longer term.
• Insurance type. Different types of insurance require different amounts of coverage, which can affect the price you pay. For example, credit life insurance covers all repayments if you die, while job loss insurance only covers repayments while you’re not working.

• Benefits of car loan insurance

  Why should you consider car loan insurance? There are a handful of benefits you should be aware of:

  • Pays off your loan in some situations. Car loan insurance covers a portion or the whole cost of your loan if you meet eligibility criteria to enact coverage.
  • Protects your credit score. Your credit score won’t go down if you can’t make payments due to certain situations such as injury, illness or job loss.
  • Gives you peace of mind. You’ll know that you and your family can afford to keep your vehicle even if you can’t work for some reason.
  • Provides security for your family. Prevents your vehicle from being repossessed in the event that you die and stop making payments on it.
  • Easy to qualify. You should be able to qualify fairly easily as long as you aren’t over the maximum age limit and don’t have any pre-existing medical conditions.

• What to watch out for with car loan insurance

  There are also several significant drawbacks to consider before you sign up for car loan insurance:

  • Expensive fees. You’ll usually have to pay a high monthly fee to keep your insurance in place.
  • May not be worthwhile. You might be better off setting money aside to pay off your car loan in the event of an emergency, depending on how much it’s worth.
  • Decreasing benefit over time. You’ll pay the same insurance rates for the duration of your loan even though the benefit you receive will decrease as you pay off your vehicle.
  • Rigid payouts. The money paid out by the policy must be used to pay off your vehicle, which may not be your most pressing need if you’re left not being able to work.
  • Many exclusions. You could end up paying into a policy that doesn’t cover you in the end if you don’t meet the eligibility criteria for your loan insurance.

Things to consider before you sign up for car loan insurance

Car loan insurance can help to protect you in certain situations where you might not be able to make your car loan payments. That said, this type of insurance is often very expensive and comes with many exclusions. For this reason, you should think very carefully about whether it’s a good choice for you.

Another factor to consider is that many car loan insurance products aren’t sold by licensed insurance reps, which can make them particularly risky to sign up for. Loan insurance scams are also common, so you’ll need to research the insurance provider thoroughly before signing up for cover.

If you decide to go for car loan insurance, make sure you get it from a reputable lender (such as one of Canada’s Big Five banks or a well-known credit union). These providers offer legitimate insurance products that will actually protect you from defaulting if you can no longer make payments on your loan.

Compare car loans

1 - 5 of 5

Product CAFCL	Ratings	APR Range	Loan Amount	Loan Term	Requirements	Broker Compliance
CarsFast Car Loans	Customer Survey: ★★★★★	3.90% - 29.90%	$500 - $75,000	12 - 96 months	Requirements: Min. income of $2,000 /month, 3+ months employed	CarsFast will connect you with a dealership near you to help you find the right financing.	Go to siteMore Info Compare	loading Fetching your data...
Loans Canada Car Loans	Customer Survey: ★★★★★	0% - 46.96%	$500 - $50,000	3 - 60 months	Requirements: Min. income of $1,800 /month, 3+ months employed	Loans Canada is a loan search platform. Get matched with a suitable dealer based on your credit history and borrowing requirements.	Go to siteMore Info Compare	loading Fetching your data...
Approval Genie Car Loans	Not yet rated	3.90% - 29.90%	$500 - $75,000	12 - 96 months	Requirements: Min. income of $2,000 /month, 3+ months employed, Ontario only	Get customized car loan and auto financing solutions for a used vehicle that fits your budget and lifestyle.	Go to siteMore Info Compare	loading Fetching your data...
Clutch Car Loans	Customer Survey: ★★★★★	From 8.99%	$7,500 - No max.	24 - 96 months	Requirements: 3+ months employed, Max.1 bankruptcy, Ontario & Nova Scotia only	Apply for financing with online dealer Clutch, who partners with some of Canada’s largest financial institutions to get you competitive interest rates.	Go to siteMore Info Compare	loading Fetching your data...
Dealerhop Car Loans	Not yet rated	6.99% - 29.99%	$7,000 - $50,000	12 - 96 months	Requirements: Min. income of $1,800 /month, 3+ months employed	Dealerhop matches you with a dealer partner to get you financing.	Go to siteMore Info Compare	loading Fetching your data...

loading

Car loan insurance alternatives

Not sure whether credit insurance is the right fit for you? Consider one of these options instead:

• Purchase traditional insurance. Disability or life insurance is often less expensive than car loan insurance. It might also cover more situations, and the payouts from these insurance plans can often be larger than those that come with car loan insurance.
• Ask for help from friends and family. Speak with your friends or family members to find out who might be in a position to help you with a short-term loan or some other form of zero-interest financing if you run into issues that prevent you from working. This could be a better solution than signing up for car loan insurance as a contingency plan.
• Set up an emergency fund. Use the money you would spend on insurance to set up an emergency fund. This will ensure that your car payments are covered if you can’t work for a period of time. The money will also turn into savings once you pay off your vehicle in full. If you don’t have an emergency fund, you can get started with a high-interest savings account.

Bottom line

It might make sense for you to purchase car loan insurance in some instances, but these are less common than you might think. You will often be better off getting your car loan payments covered by your life or disability insurance if the need arises. Find out more about what car loan insurance is, how it could benefit you and what your alternatives are.

Frequently asked questions

• Is loan insurance mandatory for bad credit?

  Absolutely not. Loan insurance is never mandatory no matter what the state of your credit is. If your lender is trying to convince you otherwise, then you might want to walk away from your loan as this is a predatory lending practice.

• Do I need to fill out a health questionnaire to qualify for car loan insurance?

  It depends which provider you use. Some may require this information while others will not. That said, you may want to have a medical exam done so that you have a clean bill of health on the record. This could help you in the future if your car loan insurance company suspects that you had a pre-existing condition and denies your coverage.

• Can I cancel my loan insurance if I don't need it anymore?

  Yes. You can always cancel your loan insurance since it’s not mandatory to add on to your coverage. Just be aware that you may not be able to add insurance back on to your loan at a later date with some providers.

• How do I file a loan insurance claim?

  Each insurance provider will have a different way that you can file a claim. Most providers will require you to call in to report an injury, illness or job loss that affects your ability to pay for your car loan. From there, you’ll have to submit a paper copy of your claim online or send it in by mail.