Should You Get Credit Insurance When You Buy a Car?

Credit Disability Insurance

Credit disability insurance pays on a car loan if you become ill or injured and can't work during the time you're covered. | September 14, 2015 | iStockphoto

For most of us, buying a car is the second largest financial transaction we'll make, next to buying a home. And we're likely to get loans to finance our car purchase. In the fourth quarter of 2014, 84 percent of new cars purchased were financed, according to Experian Automotive.
If you're financing your car purchase through a dealership, it's also likely that the finance and insurance manager will offer you warranty and insurance products, such as an extended warranty, gap insurance or tire-and-wheel protection. The F&I manager might also offer credit protection, which is meant to cover your car payments should you be unable to pay them yourself because of layoff, injury, illness or death.
The most venerable of these products, with an almost 100-year history, is credit insurance. Consumer groups have long been leery of credit insurance products, which are offered not just for cars, but also for credit cards and other consumer loans. Often, the consumer groups contend, the products are expensive and unnecessary. Further, there have been instances of lenders forcing the credit insurance on consumers.
"It's often very expensive when you compare it to the benefits," says Chris Kukla, senior vice president with the Center for Responsible Lending, a nonpartisan, nonprofit organization focusing on consumer lending, based in Durham, North Carolina. Further, he says, the credit insurance policies are "riddled with exclusions."
Payout rates (the premium dollars paid compared with the amount paid out in claims) are typically low. That's because the money is going to commissions, he says.
There are some decent providers of credit insurance, such as credit unions, Kukla says, but it's tough for consumers to know which products are worthwhile and which ones are rip-offs. To protect themselves, potential buyers should look for coverage they can afford that specifically addresses their financial concerns and which comes from a reputable insurer. The insurance department in your state is the place to check in order to see that the company is licensed and legitimate, says automotive expert Lauren Fix.
The three most common types of credit insurance coverage are:

Credit life: This pays off all or some of your loan if you die during the time you're covered.

Credit disability: Pays on the loan if you become ill or injured and can't work during the time you're covered. It's also sometimes called credit accident and health insurance.  
Credit involuntary unemployment: Pays a specified number of 
monthly loan payments if you lose your job through no fault of your own, such as in a layoff, during the coverage term. It's also known as "involuntary loss of income" insurance.
None of these coverages is required with a car loan. You can't be denied credit if you say no to a credit insurance offer, Kukla says.

Payment Protection: A Newer Product
 
A more recent type of credit protection is called debt protection, which might also go by such names as debt cancellation, debt suspension or payment protection. Federal law allows national banks, most state-chartered banks and credit unions to offer this benefit without involving an insurer. The bank or credit union fills that role.
Debt protection provides benefits that are similar to credit insurance. It's typically offered when you sign your loan papers.

What To Ask Yourself and the Lender
 
The popularity of debt protection products has been on the wane over the decades. In a long-term study for the Federal Reserve, the percent of people who said they purchased debt protection coverage in 1977 was 63.9 percent. In 2012, that dropped to 22.7 percent.
If you are interested in a debt protection product, the Center for Responsible Lending suggests that you purchase the products through a credit union or bank, where the rates may be lower. Compare any dealership price quote and terms to ensure you're getting the best deal for comparable coverage. Also, the National Association of Insurance Commissioners advises you to ask these questions before you buy:

• What's the premium? Will it be financed as part of the loan? And will that increase your loan amount so you'll have to pay additional interest?
• Can you pay the premium monthly instead of financing the entire premium as part of your loan?
• What's the loan payment minus the credit insurance?
• Will the insurance cover the loan's full length and amount?
• What are the limits and exclusions on payment of benefits?
• Is there a waiting period before the coverage becomes effective? If so, how long?
• With a co-borrower, what coverage does he or she have? What's the cost for that coverage?
• Can you cancel the policy? What kind of refund is available? Are there any penalties?

It's also wise to see if you have other insurance that might eliminate the need for a credit insurance contract in association with your car purchase. A term life insurance policy would provide benefits in the event of your death. Your employer may make disability coverage available. Check with your insurance agent to see what your current coverage would provide before you buy credit protection.
If at any point you feel pressured to buy credit insurance, it's best to simply walk away and consider your options in a pressure-free environment. In the words of the National Automobile Dealers Association, "once you sign the contract, you are legally obligated."

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To find a dealership that knows how to treat shoppers right, please visit Edmunds.com's Dealer Ratings and Reviews.

source: http://www.edmunds.com

Does Your Credit Score Affect Your Car Insurance Rate?

Your Credit Affects Your Car Insurance

In all but three states, insurers can use your credit history to help set your rate. If you have bad credit, you can minimize the costs by shopping around for better rates. For the longer term, work on improving your credit score. | November 3, 2015 | iStockphoto

Does your credit score impact your car insurance rate? It's a question you might have wondered about before — especially if you have a particularly spotty credit record. Unless you live in California, Hawaii or Massachusetts, the short answer is yes. The explanation of the relationship between credit scores and car insurance rate-setting is more complex, however.
What Factors Into a Car Insurance Rate?
Obviously, your driving record has an impact on the estimated risk your insurance company assumes by taking you on as a driver. There also are other risk elements that affect your car insurance, according to the Insurance Information Institute: where you park your car at night, your gender, your age and the kind of car you drive. Also relevant to your rate, according to insurance companies, is your credit score.
The practice of using credit scores in setting insurance rates has been around for at least 20 years. According to at least two studies, a 2003 study done at the McCombs School of Business at the University of Texas at Austin, and a 2007 study by the Federal Trade Commission, there is a statistical correlation between how much a consumer costs an insurance company and that customer's credit score.
The Texas study looked at a random sample of 175,647 people in the state and found that "the lower a named insured's credit score, the higher the probability that the insured will incur losses on an automobile insurance policy, and the higher the expected loss on the policy." The study's authors noted that they did not attempt to explain why credit scoring added significantly to the insurer's ability to predict insurance losses.
The FTC study found that credit-based insurance scores are effective predictors of risk under automobile policies. "They are predictive of the number of claims consumers file and the total cost of those claims," study authors write. "The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums."
It's also important to note that insurance companies don't use traditional credit scores. They build their own scores based on FICO or Experian scores: Basically, companies take your score and use it in their own model.
What You Can Do To Mitigate Your Costs
Regardless of whether the use of credit history is fair, it is legal in all but three states. So what can you do if your credit score is in less than perfect shape? As always, your best bet is to shop around for an insurance company.
"Insurers always differ in how much weight they put on each rating factor, and I guarantee you consumers will always find one that finds their imperfect credit score less of a problem than other insurers do," Kuo explains.
According to a study by WalletHub, Geico appears to rely the least on credit scores, while Farmers Insurance seems to lean on it the most heavily.
For consumers who have difficulty finding coverage at all, in almost every state there is an assigned risk plan that helps high-risk drivers find coverage for a limited period of time. "Even if the rates may be higher than if they obtain a policy in the voluntary market, they will be avoiding insurance lapse, which not only contributes to higher rates in the future, but also possibly legal consequences," Kuo explained.
Finally, improve or maintain your credit history by paying your bills on time and not skipping payments. You also should check your credit report and keep an eye out for possible errors. Consider free credit monitoring with a company like CreditKarma and free annual credit-history reports from AnnualCreditReport.com.

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To find a dealership that knows how to treat shoppers right, please visit Edmunds.com's Dealer Ratings and Reviews.

source: http://www.edmunds.com

How To Tell If Usage-Based Car Insurance Is Right for You

Going Over 80 Can Hurt Your Insurance Savings

Driving at 80 mph or more can count against rate-reduction rewards in usage-based insurance plans. | November 11, 2015 | iStockphoto

Plug-in devices that monitor aspects of an auto insurance customer's driving are nothing new. And it's nearly impossible to miss the commercials touting the savings that good drivers might enjoy if they try out their carrier's usage-based programs.
But what is still only whispered about are the potential downsides: surcharges for bad driving. Most auto insurers go out of their way to insist that their driver-monitoring programs exist only to reward safe drivers and that the worst outcome for trying one is that drivers don't get the advertised savings. And even then, insurers say, drivers will gain valuable feedback and be able to make positive changes in their driving.
But in spring 2015, Progressive announced that it would begin charging some members of its Snapshot program a surcharge for aggressive driving behaviors.
Dave Pratt, Progressive's usage-based insurance business leader, said Snapshot 3.0 currently exists in Missouri, Indiana, Iowa, Nebraska, Texas, Utah, Wisconsin, Illinois, Ohio and Oregon.
"Because insurance is regulated at the state level, the full rollout will take time and vary based on the Department of Insurance in each state," Pratt said.
As of now, Progressive is the only major insurance carrier moving away from the reward-only model of usage-based insurance programs, which are all still voluntary. Progressive explains that the surcharges will help them give good drivers even lower rates.
Other major insurers continue to insist that the usage-based programs will only reward good drivers and will not punish bad drivers. Justin Herndon, an Allstate spokesman, said that adding a surcharge is not something the company has considered for its smartphone-based Drivewise program. Nationwide Insurance has no plans to impose a surcharge on members who enroll in its program, said company spokeswoman Alison H. Emery.

For best results, keep this checklist in your car and makes notes at the end of each trip.
Driving Assessment Checklist:

• Times driven between the hours of 12 a.m. and 5 a.m.
• Hard braking (decreases in speed of 7 mph per second or greater)
• Quick accelerations (increases in speed of 9 mph per second or greater)
• Speeds exceeding 80 mph
• Total mileage

source: http://www.edmunds.com