When searching for a life insurance policy, you have many options for supplemental coverage depending on your unique situation. One option is credit life insurance, which is a life insurance policy that can help repay a large loan if the borrower passes away or is permanently disabled before the loan is paid off. In this article, we’ll explain how a credit life insurance policy works so you can decide if this type of coverage is the right fit for you.
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?
Most credit life insurance policies are guaranteed issue, meaning they do not require a medical exam, so your premium will typically depend on factors other than your health. The cost of a credit life insurance policy generally costs more than a traditional life insurance policy and depends largely on three factors: the amount of the loan, the type of credit and the type of policy. Essentially, the larger your loan balance is, the more it will be to insure it.
What does a credit life insurance policy cover?
A credit life insurance policy is designed to pay off outstanding debts if the borrower dies before their debt is fully paid. It covers several different types of debt, including mortgages, student loans, auto loans, bank loans and others. The amount of coverage will vary greatly depending on your needs, but the average credit life insurance policy offers coverage of around $5,600.
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 away. 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 a simpler and more affordable way 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 seven 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, SelectQuote can help you explore your options to find the right type of coverage for you and your family. We can shop policies from dozens of trusted carriers in just minutes to save you time and money while providing you options for peace of mind.
