Credit life insurance will cover you in the case of an untimely death. This insurance pays off a portion or all of your loan if you pass away. This is not a replacement for life insurance, it is a supplement to other types of insurance you may already have. Credit life insurance ensures that your title is free and clear for your family and estate. The lender is actually the beneficiary of the policy, not the family members, as a result, estate taxes can be avoided. Credit life insurance focuses on protecting the asset not the person, therefore, exclusions are minimal. The payments for the insurance are typically rolled into the monthly payments. Similar to purchasing any other type insurance, there are several questions you should ask yourself before purchasing a plan:
- Does this plan have a waiting period before it will pay out?
- What is the annual premium?
- What does this plan cover?
- Are there any exclusions (if any)?
- Can I cancel the policy?
It is important to point out that lenders are the biggest benefactors of credit life insurance. If you die, the insurance payment is made directly to the lender instead of your family. However, life insurance and savings can also protect your assets and debts for a fraction of the cost.