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Credit Life Insurance and Credit Disability Insurance: Not Your Only Options

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.
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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 is made.

A better choice for protecting yourself in the event of disability–whether temporary or permanent–is to purchase private disability insurance. This gives you a check, which is a percentage of your income, to continue paying your bills while you are disabled. With some companies private disability insurance can be converted to long term care insurance with no medical underwriting when you reach age 65.


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