Credit life insurance is a type of policy designed to pay off specific outstanding debts if the borrower passes away before it’s paid off. The term usually matches the loan period, and the death benefit decreases as debt decreases.
Learn how it works, what types are available, and when it may make sense for you to purchase.
How Credit Life Insurance Works
Credit life insurance is an individual policy that provides loan balance protection for credit payments. It pays the balance of your loan in case something happens to you or your family, such as death or disability.
The total benefit that can be paid varies based on the type and amount of coverage chosen and how long the policy has been in force. It usually pays directly to your beneficiary assisting them with any outstanding debts you may have had when you passed away.
Credit life insurance often has less strict underwriting requirements, and it is typically offered for large loans such as mortgages or lines of credit. It can be used to protect co-signers on a loan or dependents who rely on the underlying asset, such as your home.
Determine When Credit Life Insurance Makes Sense
Credit life insurance can be a great option to consider if you are thinking about taking out a loan, and the concept of credit life protection is appealing to you.
When deciding whether it is right for you, keep in mind that it's important to assess what types of risks you are looking to insure against, how much coverage you may need and the cost involved when selecting a policy.
It is also worth noting that in some cases, credit life insurance is not always necessary and there may be other options such as personal finance solutions or payment holidays available.
Common Coverage Types and Terms
Credit life insurance covers the outstanding balance of a loan in the event of the policyholder's death. This type of policy is often offered by lenders when you take out a loan, and it can protect any parts of the debt that may be left unpaid due to an untimely death.
Coverage types vary among policies and providers, but some of the most common are listed below: Guaranteed Death Benefit – if the borrower passes away during the term of the loan, this pays off any remaining balance owed on it.
Accidental Death Benefit – this provides a lump sum if you pass away as a result of an accident. Critical Illness Benefit – if you suffer from an illness that is specified in your policy and unable to work, this coverage will pay off what’s left on your loan.
Find Out if Credit Life Insurance Is Right for You
Before you decide to purchase credit life insurance, it's important to determine if this type of coverage is right for you. Consider your debt obligations and the remaining term of your loans - if you have a long-term loan, such as a mortgage, this coverage may make sense.
On the other hand, if your loan loan term is relatively short and you have enough savings to cover any unexpected expenses, this may not be necessary.
Be sure to ask yourself questions about your financial standing and lifestyle in order to ensure that you're making the best decision for your future.
To protect beneficiaries from being liable for unrewarded debts, conventional term life insurance might be a better option as it pays out a single lump sum to them instead of your lender.
Know Your Rights Regarding Credit Life Insurance Policies
You have the right to understand your rights and responsibilities when it comes to credit life insurance. Be sure to carefully read through any policy documents before signing on the dotted line.
Term coverage will be higher with age but credit life insurance is generally more accessible without any form of medical exam required. Credit life insurance will always remain voluntary and must not factor into lenders decision making processes.
Be aware that you can cancel or alter your coverage at any time, or apply for a decrease in coverage if your debt load decreases Familiarize yourself with state laws regarding credit life insurance policies so that you know what kind of protection is provided by these types of programs.