April 27, 2022
Are you at the beginning of the loan process? Considering making a large purchase that will require a loan? In the process of obtaining a loan from any lender you will likely be offered some kind of insurance or similar product to protect your loan. At Reliable Credit, these products are collectively referred to as optional credit products. You may also hear these products referred to as ancillary products, loan protection insurance, or optional protection products. So, what are these products?
According to the American Financial Services Association (“AFSA”):
“Optional protection products grew out of a desire by consumers to build levels of safety and protection into their loans. Early optional protection products were sold as a means by which consumers could protect themselves when unanticipated events interfered with their ability to meet financial obligations. Since those times, increasing use of credit and innovation by lenders, has broadened the array of optional protection products available to borrowers. This has given the consumer more choices as to how they wish to structure a loan that best suits their needs and preferences.”
Many motor vehicle dealers sell optional credit products under retail installment contracts that Reliable Credit chooses to purchase from the dealer. The sale of those optional credit products are not covered in this article.
What types of optional credit products does Reliable Credit offer?
Reliable Credit offers four (4) optional credit products:
- Credit Life Insurance
- Credit Disability Insurance
- Involuntary Unemployment Insurance
- Guaranteed Asset Protection
Each product Reliable Credit sells is optional and never required as a condition to obtain credit. Furthermore, an optional credit product can be sold only if Reliable Credit reasonably determines it offers a benefit to the consumer at a reasonable price and the consumer buying it understands its terms and conditions. During loan consummation, Reliable Credit and the borrower will review any applications and policies and discuss the coverage benefits, exclusions, and costs in detail before the borrower makes their decision whether or not to purchase the product. The cost of the premium(s) is included in the monthly payment and the cost is fully or partially refundable in the event of an early payoff or cancellation request.
What can the products do for me?
Credit Life Insurance
If a borrower dies before paying off a loan, the proceeds of credit life insurance are used to reduce a borrower’s unpaid, outstanding debt (based on the terms described in the credit product policy).
Credit Disability Insurance
This product pays monthly debt payments owing during periods of a borrower’s disability as defined in the policy. Typically, if a borrower is unable to perform the duties of their occupation, they are considered disabled. Often, borrowers who cannot work due to a disability experience a drop in income. Credit Disability Insurance is designed to help “bridge” financial income gaps caused by disability.
Involuntary Unemployment Insurance
This product may help pay some of a borrower’s debt if a borrower is involuntarily terminated from employment but qualifies for state unemployment benefits. Often, when a borrower loses their job, state unemployment benefits do not fully replace lost employment income.
Guaranteed Asset Protection
Often referred to by its acronym, “GAP”, this product is designed to reduce any unpaid debt remaining after a creditor receives a borrower’s insurance proceeds check following theft of a vehicle or if a vehicle is deemed a total loss after collision or other qualifying claim event.
Are optional credit products right for me?
It depends. Optional credit products are offered to provide a benefit to the borrower, but not every borrower may benefit from each product offered. When considering an optional credit product, it’s important to understand the factors you may face through the term of your loan and the optional credit product’s terms and conditions. Some optional credit products may not be beneficial to you based on your individual circumstances. For example, if you already own life insurance or other assets sufficient to pay off your debt without financial disruption to your estate, credit life insurance may not be beneficial.
What do I do if I’ve suffered a loss and want to use my optional credit product?
If you have suffered a loss that you think might be covered, contact your Reliable Credit branch that services your loan and speak with a representative to start the claim process. Our trained representatives are here to help you through the process.
In the end, whether you choose to purchase an optional credit product is up to you. If you don’t have an emergency or rainy day fund, optional credit products are another way to protect yourself in the event of death, disability, involuntary unemployment, or total loss of your vehicle. If you are in the market for a loan and have questions regarding optional credit products, give your local branch a call – licensed representatives are available at all Reliable Credit branches to help.
Contributed by: Christian V & Brooke W-J