Getting life insurance when you buy a car. It's an extra that you can pass up, but with a low enough rate it pays

Lower interest rates are putting people in an auto-buying mood, but the dealers are selling an accessory you may not need. After picking out the car and the options, you will be led into one of those little offices with cheap wood paneling near the showroom. You hear what this little beauty is going to cost in monthly payments, swallow hard, and decide you can swing it. Now, the salesman shoves a bunch of papers across the desk for your signature.

One of those papers is a life insurance policy. Sign it and, for a few extra dollars a month, you will guarantee that the balance of the car loan will be immediately paid off should you pass on while the loan is outstanding. Sitting in that cramped office, a customer could get the impression that the insurance policy is a requirement for getting the loan. That would be a wrong impression.

While the salesman may seem pretty casual about this policy, known as credit life insurance, people taking out an auto loan or any other consumer loan should think carefully about whether those few extra dollars are worth it.

Credit life insurance is issued by insurance companies, and auto dealers or banks act as salesmen for the policies. Like any salesmen, the lenders get a commission for their trouble, on top of the interest they get from you for the loan. The insurance itself is similar to decreasing term coverage, where the amount of coverage goes down as the loan is paid off.

How much you pay for credit life depends on the size of the loan and the state you live in. Unlike other insurance policies, it has nothing to do with age, except that in some places a borrower is ineligible after age 65 or 70.

In some states, the maximum allowable premium has been set fairly low, so buying a credit life insurance policy may not be such a bad deal, compared with an alternative like annual or five-year renewable term. In New York, for instance, the maximum allowable rate for credit life is 28 cents per $100 of debt per year, which would mean you'd pay about $100 more on an $8,000, 48-month car loan. But in Alabama, Louisiana, and South Carolina, the maximum rate is $1 per $100 of annual debt. Here, credit life would cost about $370 on that same $8,000 loan.

Whether it's $100 or $370, it is not included in the annual percentage rate, but is simply added to your monthly payments. The $370 charge, for example, would add $7.70 a month, or $92.50 a year, which is fairly expensive for only $8,000 of insurance. New York's rate, on the other hand, comes to just about $25 a year for the same coverage, which is more competitive.

The other states come in between New York's low cost and these higher costs. Besides New York, the rates are around 40 cents or less per $100 in Arizona, California, Maine, Massachusetts, New Jersey, Rhode Island, Vermont, and Wisconsin. The auto dealer or loan officer is supposed to tell you what the costs are in your state; if he doesn't, ask your state insurance office.

Once you have this information, go out and see if you can't buy the same coverage for less elsewhere.

``People need life insurance for a variety of needs,'' points out Robert Hunter, director of the National Insurance Consumer Organization, a nonprofit research group in Washington. ``And from time to time you are going to take out loans. Instead of buying one of these credit life policies, I'd suggest loading that into an annual renewable term policy.''

Even if you live in a state with a low maximum rate, however, credit life may be worthwhile, though a comparison with term policies would be useful.

``I would not take on any kind of loan without credit life insurance,'' says Robert Leadbetter, deputy banking commissioner in Massachusetts. ``I wouldn't want to put that extra burden on my wife and children.''

While his personal decision is made with full prior thought, Mr. Leadbetter acknowledges that many people either don't think about it or aren't given much of a chance, which may explain why more than 70 percent of all loans are insured.

``When somebody's telling you to sign here, and here, and here, it's pretty difficult to say no,'' he says.

``Some people are always going to assume they have to sign everything that's pushed in front of them,'' said David Heineck, chief of the life and health insurance section in the Wisconsin insurance commissioner's office. ``I automatically say no. I'm single, so insurance is not a concern. I could care less who gets the car.''

In addition to a fairly low 40-cent maximum, Mr. Heineck says, Wisconsin requires a 10-day ``free look,'' where a borrower can take the credit life, then go out and find a cheaper policy and cancel the first one without affecting the status of the loan. A few other states have similar provisions, so you should ask about them.

While age is usually not a factor in obtaining credit life, it may affect whether you can get the alternative for less. If you're over 50 or 55 credit life could be a better deal, particularly in a state with lower maximum rates.

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