Car loans are one of the most popular types of loans. However, when completing such a procedure, in addition to standard banking requirements, some conditions must be met. One of them is car insurance, the second is life and health insurance with a car loan. This is an additional requirement of banks to provide guarantees of timely repayment of all debts under any circumstances, even if the lender has serious health problems.
This trend is becoming more widespread in banking practice. According to law, life insurance when buying a vehicle in installments is not a prerequisite. However, in reality, getting a car loan without life insurance is becoming more and more difficult.
What is the difference between this type of insurance and traditional insurance? In this case, the insurance contract is drawn up once for the entire duration of the credit contract. It does not need to be renewed once a year until the car loan is paid off.
What does life insurance do for a car loan?
- The right to fully or partially repay the debt under the loan agreement in the event of unforeseen health situations (complete or partial disability or death of the client);
- Protection of the material interests of not only the insured person, but also close relatives (especially if the borrowed person is the only breadwinner in the family);
- In the event of early repayment of the loan debt, the life insurance policy continues for the period for which it was concluded.
Life insurance increases the likelihood that a financial institution will issue a loan. In some banks, the absence of such a policy from a potential client is a reason for refusing to issue a loan, because working with problem debts significantly reduces the bank’s profit. In this case, the credit manager has every right not to sign the client’s application, without even explaining the reasons for the negative answer.
Life insurance is the confidence that the client will return the funds in full and within the period specified in the contract. On the Internet, you can find a lot of information on how to opt out of life insurance for a car loan. If a citizen is firmly confident in his material capabilities and is convinced that he does not need such a service, he has every right to refuse insurance. To do this, you need to fill out the appropriate application form to the bank. After that, the manager will consider it and make a decision.
You need to be ready to refuse to issue a loan or a loan on less favorable terms with higher interest rates. Thus, car insurance insurance in practice is not an additional cost for the client, but, on the contrary, serves as the basis for reducing the cost of the loan. This is a common practice in banking. The financial institution raises the rate when the risk increases and lowers it when the threats of non-payment diminish.
The cost of the policy for a car loan
The amount of premiums for life insurance for car loans depends on the size of the loan. However, as a rule, it is no more than 0.1%.
At the same time, both parties to the transaction: both the bank and the borrower will remain in the black. The first will receive compensation in the amount of the outstanding loan balance, the second will remain the full owner of the car.
How does customer protection work?
Suppose that an insured event occurs, as a result of which the citizen has lost his health and, as a result, will not be able to fulfill his professional duties, receive income and pay off the loan debt. In this case, the insurance organization pays the bank the remaining amount of the debt under the loan agreement, protecting the interests of its client. In this case, the vehicle taken on credit remains in the possession of the borrower.
Life and health insurance for a car loan is not a prerequisite. However, this service should not be neglected, because it is beneficial not only to the bank but also to the borrower. Having such insurance on hand, you can count on a positive answer to the issuance of a loan, on the one hand, on the other hand, it will serve as reliable protection for the payment of all financial obligations to the bank. By purchasing a life insurance program, you maintain your financial independence and stability.