Sunday, February 01, 2004

Kelly's Korner Credit Insurance - Born Yesterday?


Q. Is there a rebirth of credit insurance?

A. I was unaware of its passing! Credit insurance has been, is, and should continue to be a product of immeasurable benefit to customers and lenders alike. It is a product that you should offer to each customer who qualifies for the coverage. Here is a quick refresher to guide your presentation.

Credit Life Insurance

Most underwriting guidelines state that a customer must be between18 and 64 years of age and in good health when they sign the contract. Typical policies will have a few health questions the customer must answer in writing and then sign the form where indicated.

Coverage can be single or joint life insurance. Joint coverage is popular with co-buyers, indicating both buyers have requested coverage and signed the contract.

The benefits of credit life insurance are easy to explain. If the customer dies, the insurance company pays the loan balance to the lender as primary beneficiary, while the estate receives the vehicle title. Life insurance does not have to go through probate. All benefits are paid in addition to other benefits for which the insured may be eligible. Cancellations are calculated using the Rule of 78; the refund goes to the lender; all funds are applied to the customerís loan. If the lien is satisfied, the refund is payable to the customer.

Disability Insurance

Disability protection is a bit more involved. As with credit life insurance, the insured must be in good health and 18-64 years of age at the time of signing the contract. However, disability protection requires that the insured must be working at least 30 hours per week at the time of signing the contract and policy.

Disability coverage also has either a time qualifier (retroactive), or a time deductible (elimination), indicating the number of days an insured must be ill or injured before qualifying for benefits. The number of days can vary from among 7, 14, 30, 60 or 90 days. Disability coverage is normally 14 days retroactive.

Retroactive means the benefits are paid as of the first day of illness or injury. The auto business is customarily 14 days retroactive.

Elimination benefits begin on the next day: they do not go back to the first day of injury or illness. Banks and credit unions are normally 30- or 60-day elimination.

Although the insured does not have to be hospitalized to qualify for disability benefits, they must be under a doctorís care. All benefits are paid in addition to other benefits for which the insured may be eligible. Disability insurance benefits are not taxable.

It is important to remember that the purpose of insurance is to make whole rather than to improve. Use the following word track to help your customer determine if credit life insurance can meet their needs: If your income is lost due to illness, injury or death, would this vehicle payment be a burden to your family and loved ones? If so, credit insurance could come in handy. I am sure you would agree with me, no debt should live longer than its creator, should it?

If you do not offer credit insurance, ask a vendor who calls on your dealership to set it up for you. The financial presenter must be licensed by the state to talk about credit insurance. If you do not have a license, your vendor can help you obtain one. Credit insurance does not need to be reborn. Just put it to work for you as a tool you can use to increase customer satisfaction.

Kelly's Korner, OIADA Squeaky Wheel Newsletter, February 2004