Do You Have Insurance on Your Debt?
Bills, taxes, and death are all part of life.
But in the unfortunate event of your demise, the last thing you want to do is put that financial pressure on your family to cover your debt obligations.
“The financial consequences of death can be severe, which is why it’s vital to do whatever you can to shield your family from financial distress,” says Michael Norton, Senior Vice President of Investment for David Lerner Associates.
Fortunately, signing up for credit life insurance is great for making sure your debt will be covered should the unthinkable happen.
What is Credit Life Insurance?
Also known simply as credit insurance, this is a type of insurance policy that exists only to pay off an unsettled debt if you die.
When you take out a big loan, such as a car or home loan, your lender may try to sell you a credit life insurance policy to cover the loan’s value.
In the event of your untimely demise, this insurance policy would then pay back the lender so that your beneficiaries are not left troubled with covering the payments on these big loans.
How Does Credit Life Insurance Work?
Unlike traditional life insurance that benefits your loved ones, credit life insurance is taken out for the benefit of the lender.
With life insurance, the death benefit is determined at the time you buy the policy.
However, the face value of a credit life insurance policy matches the value of the loan it’s designed to pay off. This means the value of the policy can reduce over time as the balance of the loan reduces.
Do I Need Credit Life Insurance on Top of Life Insurance?
Having credit life insurance means that when you die, your loved ones will not be forced to dip into your life insurance payout to pay your outstanding debt, as they will still need to cover everyday expenses such as utilities, school fees, and groceries, and to ensure that they can maintain the same quality of life.
What Does Credit Life Insurance Cover?
Depending on your preferred product, it’s possible to get coverage on credit cards, student loans, car and asset financing, mortgages, and revolving personal loans.
In a typical policy, you’ll pay a premium — typically rolled into your monthly loan payment — that allows the lender to be paid in full if you die before paying off the loan.
To avoid any unwanted surprises, ensure you understand the terms and conditions of a policy and the protection offered.
There are various types of credit life insurance that will exclusively apply to every individual agreement. Taking the time to understand the policy terms will give you an idea of what exact benefits you’re entitled to and the conditions accompanying these benefits.
Can Credit Life Insurance Cover More Than One Person?
If you are married, both you and your partner are responsible for the debt; consequently, both of you will need to be covered.
This also applies to friends or family members who stand surety for your loan.
Staying current with your financial obligations plus the options to serve them will let you select the right products and cover the relevant individuals responsible for certain debts.
With ensuring both you and your partner, you may be entitled to the additional benefit of a discount on the coverage.
Do I Need Credit Life Insurance?
Whether this type of insurance is a good choice for you depends on your health and your individual financial situation.
- If you have poor health and cannot qualify for traditional life insurance coverage, then a credit life policy can protect your loved ones from having to take on your debt obligations.
- If you have good health and can qualify for a low premium, you may be better off with term life insurance for extra benefits to your loved ones.
When searching for a credit life insurance cover, always painstakingly read the terms, conditions, and exclusions of the policy before you commit yourself. Go through all exclusions and clauses. Look for a reputable company.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc.
This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
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