What is the definition of “credit life insurance” on a car loan?

Credit life insurance for an auto loan ensures your vehicle is paid off in the event of your death. The average cost of credit life insurance is $50 to $100/yr.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Oct 26, 2021

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Things to remember...

  • Credit life insurance can be an important niche product for automobile buyers with heirs or co-signers
  • It is not the right product for everyone
  • Credit life has advantages of convenience, easy qualifying, and tax benefits

Credit Life Insurance is a policy designed to pay off the balance remaining on your automobile loan at the time of your death. There are many variations from policy to policy, so it is important to compare term life insurance quotes from many different policies and providers.

The beneficiary of a credit life policy is your creditor rather than your heirs. Having a credit life insurance policy on your auto loan ensures that your spouse and family will be able to keep and use your automobile should you die before the loan is retired. If you are single and don’t wish to leave your automobile to a friend or family member, there is little reason to add a credit life insurance premium to your monthly loan payment.

However, if you someone cosigned your loan, give credit life insurance careful consideration. It would not be kind to leave a significant loan balance on the shoulders of someone kind enough to co-sign your loan.

Credit life is term insurance, so it covers your loan over the life of the loan. It also doesn’t build cash value. You’ll never be able to borrow against your credit life policy. Your FICO scores have no impact on your ability to acquire credit life insurance, but a few states do have age restrictions. Make sure you aren’t paying too much for your coverage with our FREE insurance comparison tool above! 

Cost of Credit Life Insurance

Credit life insurance policies typically cost more than traditional life insurance policies. This greater cost is largely since credit life insurance is a guaranteed issue product. The fact that you’re a borrower is your qualification to obtain the insurance. There are no medical exams required or forms to fill out related to your health. Prices can vary from one insurance provider to the next.

Does it make sense to purchase credit life insurance?

You might be thinking, “If this policy benefits the lender, why would I be interested in purchasing it?” It might seem a bit foolish to carry coverage that benefits your lender, and the amount of coverage is decreasing each month.

There Are a Few Reasons That Credit Life Insurance Can Make Sense:

  1. Your lender may require it. If your down payment is minimal, your lender can minimize the loan risk by requiring the purchase of a policy.
  2. You are unable to qualify for life insurance. Buying additional traditional life insurance can be less expensive than credit life, but what if you can’t qualify for inexpensive life insurance? You can still ensure your automobile will be available to your heirs.

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Credit Life Insurance Avoids Many Tax Issues

While traditional life insurance policies can be subject to estate or inheritance taxes, credit life insurance policies are not. Remember, the lender is technically the beneficiary of the credit life policy, not your heirs.

Credit Life Insurance Pros and Cons

There are a few pros and cons to credit insurance. Keep these in mind while shopping for credit life insurance, whether for your auto loan or for some other debt.


  • You can qualify for credit life even with serious health issues
  • Convenience. The loan payments can be rolled into your monthly automobile loan payment
  • Protect your family from additional debt at the time of your death


  • Interest. Since the insurance payments are most often rolled into the loan payments, you are paying interest on the cost of the policy
  • Cost. The price for credit life is higher than the cost of a traditional life insurance policy for most borrowers
  • Provides little value to those borrowers with no heirs and no cosigners

How Much is Credit Life Insurance on an Auto Loan?

Purchasing credit life insurance for an auto loan is very affordable. The average cost is around $0.50 per year in premium payments for every $1,000 of coverage. This means that if you have an auto loan for $10,000 then you will pay an annual credit life insurance premium of $50 (the premium does not have to be paid annually). Finding cheap rates for credit life insurance is easy if you shop around. Be sure to compare term life insurance quotes from many different policies and providers to find the best rates.

If your credit is less than stellar, or you are concerned about your family retaining possession of your automobile at the time of your death, credit life insurance is worth investigating. Be sure to compare credit insurance quotes from a variety of providers. Remember that the cost of the insurance is often included in the loan payment, so you’re also paying interest for that coverage. It may be possible to separate the two. Investigate all the options while comparatively shopping.

Be aware that some unscrupulous lenders may insist that you purchase optional credit life insurance or reject your loan application. This is illegal. You do not have to purchase credit life insurance. You can report such a lender to your state attorney general office. Make sure you aren’t overpaying for your coverage with our free insurance comparison tool below! 


  1. https://www.investopedia.com/terms/c/credit_life_insurance.asp?lgl=myfinance-layout
  2. https://www.iii.org/article/how-life-insurance-sold

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