Credit Life Insurance: How To Decide If You Need It

What is it?
Credit life insurance is a policy that pays off a particular debt—like a home or auto loan—if you die while the policy is still active. Upon your death, ownership of the insured asset would be transferred to your beneficiaries, via your estate.

Why it might work for you

  • If you are the only borrower for the debt, the lender will not be able to legally pursue repayment of the debt from your relatives. (If you live in a community property state, there may be an exception to this.)
  • If you’re not able to get regular life insurance—say because of medical issues—credit life insurance could be for you since there is no required medical exam.
  • There could be positive tax implications for your dependents since money isn’t transferred directly to them upon your death.

Why might it not be for you?

  • The price of credit life insurance may be more than a standard life insurance policy.
  • If you already have regular life insurance, you may not need credit life insurance. In fact, the regular life insurance could be preferable since your dependents would have the flexibility to use the money how they want.
  • Typically, the premium for credit life insurance stays the same even as the balance of the loan being insured goes down. So you may be paying the same amount to cover less and less of a loan.
  • The most thorough way to examine your estate needs and options is to a set up a meeting with an estate planning professional. That way you can go over all contingencies for protecting the financial futures of the people you love.


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