What is Car Loan Insurance?
Car loan insurance guards against the inability to meet loan repayments due to death, trauma, involuntary unemployment, or disability. It’s subject to the maximum payouts provided in your contract. It also ensures your family and spouse don’t inherit the debts.
Car loan insurance isn’t obligatory and can generally be taken only as part of your loan package.
Why Was Car Loan Insurance Purchased?
Car loan insurance is sold to people looking for peace of mind when buying a new car. As such policies protect against damage caused by accidents, customers often want to insure their loan, too. Collisions, terminal illnesses, and death are unpredictable, and it’s best to insure your car financing while you still can.
There are three types of car loan insurance products:
- Death or trauma – This type covers your net balance stipulated in the loan contract in case of death or cancer, major stroke, heart attack, and coronary artery bypass surgery.
- Disability – Disability cover protects loan repayments should the customer become completely incapacitated for a longer time than the policy’s elimination period. Payments start once the elimination period ends and continue throughout the customer’s total disability or policy termination.
- Involuntary unemployment – Involuntary unemployment coverage pays your repayments should you become involuntarily unemployed for longer than your elimination period. Payments continue throughout the involuntary employment up to 120 days or until the policy termination.
You can also select a number of coverage combinations:
- Death and trauma + involuntary unemployment + disability
- Involuntary unemployment + disability
- Death and trauma + disability
- Only disability
- Only death and trauma
Examples of Mis-Sold Car Loan Insurance
Here are some of the most common examples of mis-sold car loan insurance
- Sales under pressure – not providing the customer with enough time to consider the deal and alternative options.
- CP commissions – the customer wasn’t familiarized with the commission paid to the deal from the finance company due to vehicle sales.
- Insufficient information – the salesperson didn’t explain the ownership, commission, interest charges, repairs responsibility, agreement terms, final payments, agreement type, etc.
- Financial options – the customer wasn’t provided with a wide range of different products that might have been cheaper.
- Affordability – the customer isn’t able to make payments throughout the agreement term.
- Mileage – the customer unwittingly agrees to low mileage (e.g., 7,000 per year), although the dealer knows they will cover more (e.g., 14,000). As a result, excess charges apply and can amount to over $2,000.
- Excess mileage – the mileage charges aren’t relative to the effect on residual or market value.
- Not knowing what you’re signing – many customers don’t know what they’re entering into. For instance, they may be switching from a three-year PCP to a four-year PCP for a lower price, but the salesperson doesn’t fully explain the details.
- Not making informed decisions – for example, the customer may purchase PCP, thinking they’ve bought HP. In that case, they may feel embarrassed or silly and don’t want to challenge the finance company or supplying dealer.