Wrapping Insurance Into A Loan

Should you include truck insurance when you finance a truck? Only 14 percent of Overdrive readers do, says Chris Brady, whose Commercial Motor Vehicle Consulting conducts the Overdrive Market Behavior Report. The reason most don’t is higher costs, due to interest being charged on the premiums over the life of the loan, say Brady and owner-operator accountant Gary Aitken of Indianapolis.

“The way interest rates are now, it isn’t too bad,” Aitken says. Nevertheless, he still cautions against paying any interest at all when there are other ways to buy the coverage. “If you don’t shop around, you don’t know if you’re getting a good deal or a bad deal,” Brady says.

Combining insurance with financing can be a winner, maintains Dana Edwards, operations director for Paccar Financial, which makes loans on Peterbilt and Kenworth trucks. Paccar Financial, through its insurance carriers, discounts rates to make up for the additional interest.

“Some of our customers are actually paying less, even with paying the interest, than if they bought the insurance contract on their own,” he says. An increasing number of Paccar borrowers are choosing the insurance option, Edwards says.

One draw is convenience. “Insurance included in financing packages will not require an up-front payment since the monthly finance payments include insurance,” Brady says. Many owner-operators prefer monthly over annual payments for any fixed cost.

“Another benefit is the owner-operator’s insurance rate stays the same throughout the duration of the financing agreement, even if the owner-operator has an accident,” Brady says. This can turn out to be a big benefit, considering that trucking insurors, who have raised rates dramatically in recent years, are particularly hard on customers with tarnished records.

The Overdrive report indicates that wrapping insurance into a finance plan appeals more to rookies and those with the most experience. Some new operators are no doubt attracted by the simplicity of the easy enrollment; it’s one less financial hassle in the transition to running your business. Also, being less familiar with insurance agents and fair-market costs, it’s more difficult for them to judge the relative cost of signing up through the lender. As for the owner-operators who are closing in on retirement, they tend to be more conservative, Brady theorizes, so they are willing to pay extra, if necessary, for stable costs.


WHEN THE OWNERCAN’T OPERATE

About one in five owner-operators includes credit life or credit disability insurance in their financing package, according to the Overdrive Market Behavior Report.

This insurance pays off the truck loan in the event of death or disability.

Credit life, though cheap, might not be such a bargain considering that you can get a large term life insurance policy even cheaper, says report author Chris Brady. The credit disability insurance makes more sense, partly because the chance of a temporary disability is higher than the chance of death.

However, it’s worth checking disability coverage apart from credit-related insurance. It may cost more, but the benefits could meet needs beyond retiring your truck note.

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