Credit life insurance is a life insurance policy that covers a large loan. If the borrower passes away or is permanently disabled before the loan is paid off, this policy will pay the outstanding debts. Here’s what you should know before you consider purchasing a credit life insurance policy.
How does a credit life insurance policy work?
Unlike traditional life insurance (where a family member or loved one is typically the beneficiary), the loan lender is the sole beneficiary of a credit life insurance policy. The policy is tied to a specific debt, such as a mortgage, bank loan or business loan. As the debt is paid down by the borrower, the cost of insurance decreases proportionally. However, the premium of the policy remains constant, often resulting in a loss for the policyholder.
How much does a credit life insurance policy cost?
The cost of this type of life insurance policy depends on the loan amount and often costs more than a traditional life insurance policy. The cost of credit life insurance is determined by three factors: the amount of the loan, the type of credit and the type of policy.
What does a credit life insurance policy cover?
A credit life insurance policy covers a borrower’s debts if the borrower passes away before paying it off. It can cover mortgages, student loans, auto loans, bank credit loans and other types of debts.
Should I get credit life insurance?
A credit life insurance policy can be especially beneficial if your spouse or someone else co-signed the loan, as it can protect them from having to repay the debt if you were to unexpectedly pass. Credit life insurance could also be an option if you can’t qualify for a traditional life insurance policy, as this policy often requires a less extensive health exam, or in many cases, no medical exam at all. However, term life insurance is often more simple and affordable to cover your debts and provide financial security to your loved ones.
With so many options and different types of life insurance coverage, you’ll want to keep these five tips for buying life insurance in mind when considering credit life insurance or another type of coverage.
Discuss Your Life Insurance Options with SelectQuote
Life insurance is a great way to make sure your loved ones aren’t left with a financial burden after you’re gone. Whether you’re interested in credit life insurance or other types of life insurance such as term or whole life insurance, we can help you explore your life insurance options to find the right type of coverage for you and your family.