What is Credit Life Insurance | Types, Benefits & Coverage

One might be offered credit life insurance at some point while applying for a loan. Though the insurance policy looks lucrative, there are some factors that are needed to go under prudent consideration before deciding to purchase credit life insurance. 

First of all, credit life insurance is different from a conventional life insurance policy. Many people are guilty of making this mistake and regretting it later. So, what is credit life insurance? 

What is Credit Life Insurance 

A kind of insurance coverage that allows you to pay off the remaining balance of your outstanding debt if you happen to pass away.

The policyholder is to pay a monthly premium alongside his/her loan payment. The banker or the lender is supposed to be the beneficiary as soon as the policy is purchased. According to this, the bank or the lender is going to get the payout instead of the family members. So, a credit life insurance policy serves the banker’s/lender’s interest rather than the interests of the borrower.

Types of Credit life insurance coverage 

Credit life insurance covers the debt payments of the policyholder in the advent of unfortunate circumstances such as –

• Brutal injury resulting in disability.
• Unemployment. 
• Death. 

This coverage varies and the benefits provided are also different depending on the specific incident and the kind of the policy. It’s important to note that many policies don’t cover all the debt payments rather a portion of it. So, the policyholder needs to acquaint himself/herself with the policy language to avoid future hazards.

Many confuse credit life insurance with permanent life insurance or sometimes with credit IUI i.e.  Involuntary unemployment insurance. IUI provides coverage if you lose your full-time job with no mistakes on your part. Here is a quiz for you:  

Is credit life insurance normally issued at a decreasing term?

Answer: Yes.

As the loan amount decreases due to the borrower’s payments, the face amount also keeps declining.  

How much does Credit Life Insurance Cost? 

Credit life insurance generally costs more than conventional life insurance for the greater risks involved. The risk is greater as credit life insurance is a guaranteed issue product for the insurance company, unlike other coverage.

The rates depend on the amount of the loan and the type of credit or the policy. Even though the cost is higher, you can always calculate the approximate cost using a credit life insurance calculator.

Why should you consider Credit Life Insurance?

Credit Life Insurance can be a massive help when you are considering taking a large amount of loan for your home or car. As it will pay off the loan if you pass away, this will provide security and comfort to your loved ones and prevent any financial hardship. 

As the policyholder keeps on paying the loan over a certain period of time, this makes the face value of the credit life insurance decrease proportionally. It will continue to do so until both values reach zero.   

Benefits 

• No medical exam is required for credit life insurance. As it pays for the loan, not for the individual’s health condition, one shouldn’t worry about going through any medical examination for this insurance. 
• Credit life insurance provides a massive advantage of freeing from the worries of one’s lifestyle, general health, or any such factors. This insurance allows almost anyone to apply and if by any chance you are not considering applying for a traditional life insurance policy, then this might be a great option to choose.   

Things to consider before purchasing a policy: 

• The cost of annual premium.
• Being sure whether the full amount of your loan will be covered or a portion of it.
• Checking the limits and the excluded areas as well.  
• Checking if you have to wait for a certain period for the coverage to become effective. 
• Is it allowed to make monthly payments?
• Checking if there are any age limitations. Though normally there aren’t any age restrictions or any such conditions in this insurance policy. 

Can you cancel credit life insurance policy?

This is one of the greatest advantages of taking this insurance policy. The short answer to this is yes, you can. And the cancellation procedure is also very direct and simple to understand. But you must verify it since it is not available in some insurance company’s policy.

Bottom line 

If you are going to take a large amount of loan at this point in your life, considering a credit life insurance policy might save you from a whole lot of unnecessary worries regarding financial protection for your loved ones. You definitely don’t want your family to get burdened with loans to pay after you pass away, right?  If you are well aware of the details of the policy beforehand, then there is nothing really to regret about it in the future. So, make sure your current life situation is well suited to apply for a credit life insurance policy instead of a conventional one.