Credit Life Insurance
Credit life is a type of insurance purchased by mortgage owners
and those with other large debts. It is designed to match the principle
balance of the loan at any given point and to pay off the loan in
full in the event of the insured person's death. It is also high
priced compared to regular forms of life insurance and is usually
offered by banks or credit unions.
To look at it another way, credit life insurance is the same thing
as decreasing life insurance. Your premium remains the same for
as long as you have the insurance, but the benefit which goes to
the lender, decreases yearly. By the time your mortgage or other
debt is paid, you will have paid thousands of dollars for insurance
that is suddenly worthless.
Insurance advisors advise against taking out insurance that applies
to a single expense. You will be far better off if you purchase
regular life insurance, either Term or Universal. If you want something
that will remain in force once the debt is paid, choose universal.
Universal would be better than whole life because the face value
can be adjusted and extra cash taken out of it once your debt is
paid, keeping enough insurance in force to cover final expenses,
estate taxes, and so forth. If the premium for the amount of insurance
you need is a little steep, you can opt for Term life. The policy
will end at the end of the term, but you will have the full face
value–not a decreasing benefit–for the life of the term.
Thus, if you die while the policy is in force, your beneficiary
will have enough to pay off your debt as well as pay your final
expenses. Furthermore, a term policy will have certain conversion
options, allowing you to keep at least a small amount of coverage
after the term expires. Just make sure the company offers either
a whole life or universal conversion option.
Credit Disability Insurance
Credit disability insurance is sometimes called "credit accident
and health" insurance. Some lenders offer life and disability in
one policy, while others offer them separately. Credit disability
insurance pays the lender if you should become disabled to the point
of being unable to hold a job. If the requirements are meant, the
insurance company will also make your payments if you should be
out of work for several months due to unexpected illness or surgery.
There may, however, be limits on the time period of these payments.
Credit disability insurance, if chosen, should be purchased very
carefully. It may not prove to be a method of paying off the debt,
especially credit card or revolving debt. The cost of the insurance
is a set amount per thousand of debt, but if you have to activate
the policy, the insurance company will make only the minimum payment.
If you have several thousand dollars in debt, the cost of the insurance
alone will increase the balance each month if only the minimum payment