The short answer
No, you generally don't have to buy credit life or credit disability insurance to get a car loan. The CFPB says credit insurance on an auto loan is optional, and adding it raises your loan amount and the interest you pay (CFPB). For Texas dealer contracts, the state rule says the dealer "may but is not required to offer" these products (7 Tex. Admin. Code §84.302).
What credit insurance is
You might think it's just part of the loan. It isn't. It's a separate insurance product sold with the loan, and it pays the lender, not you, when something goes wrong. The CFPB lists four types:
- Credit life pays off all or part of the loan if you die.
- Credit disability (also called accident and health) makes loan payments if you're sick or hurt and can't work.
- Involuntary unemployment makes payments if you lose your job through no fault of your own.
- Credit property covers the car if it's stolen or destroyed. The CFPB notes your regular auto policy generally includes this kind of protection, so compare before you pay twice.
The Texas Department of Insurance adds a detail worth knowing: credit disability coverage in Texas currently has waiting periods of 14 or 30 days before benefits start (TDI).
Your rights in Texas
TDI's Consumer Bill of Rights for credit insurance summarizes several protections. TDI notes the summary may not reflect every later change in the law:
- If insurance is required, you can shop for it. A creditor can't make you buy it from a particular company or agent, and must tell you that you can get it elsewhere.
- The cost must be shown separately. Your application and policy must list the total cost over the loan term, apart from other charges.
- No markup. A creditor can't charge you more for credit insurance than it paid the insurer.
- You can cancel. You can cancel at any time and get back unused premium, unless it's under $3.
- Payoff refunds. After you pay off the loan, your creditor has 60 days to tell the insurer so you can get your refund.
For dealer contracts under Texas Finance Code Chapter 348, §84.302 also requires credit life, disability and unemployment coverage to be decreasing term insurance, and it must come from an insurer authorized in Texas.
How to check your contract
- Look for add-on charges. Find any line for credit life, credit disability or unemployment insurance in the itemization.
- Ask to see where it's required. The CFPB says that if a product isn't stated as required in your contract, you can't be required to buy it.
- Compare the price. Ask what the coverage costs in total, and compare it with a term life policy you might already have.
- Know you can cancel. If you already bought it, you can cancel and ask for the unused premium.
Our guide to optional GAP and other add-ons covers the other common extras, and reading your TILA disclosures shows how to check the amount financed and the finance charge before you sign.
This article is general information, not legal or insurance advice.
Get pre-approved first
Walking in with a pre-approval gives you time to read the itemization instead of rushing past it. Our bad credit car loan guide explains how pre-approval works when your credit has taken some hits.
Check your pre-approval.