Credit Life Insurance

Credit Life Insurance

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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Credit life insurance is a type of insurance policy that exists solely to pay off an outstanding debt if you pass away. When you take out a large loan, such as a home or vehicle loan, your lender may offer you a credit life insurance policy that covers the value of the loan. In the event of your untimely death, this policy would then pay back the lender so that your loved ones are not left burdened with covering the payments on these large loans. This overview may help you decide if a credit life insurance policy is right for you. This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. The offers and clickable links that appear on this advertisement are from companies that compensate Homeinsurance.com LLC in different ways. The compensation received and other factors, such as your location, may impact what ads and links appear, and how, where, and in what order they appear. While we seek to provide a wide range of offers, we do not include every product or service that may be available to you as a consumer. We strive to keep our information accurate and up-to-date, but some information may not be current. Your actual offer terms from an advertiser may be different than the offer terms on this widget. All offers may be subject to additional terms and conditions of the advertiser.

Compare life insurance providers quickly and easily

See which provider is right for you. The amount of coverage you need depends on many factors, including your age, income, mortgage and other debts and anticipated funeral expenses. Whole life insurance combines life insurance with an investment component. Coverage for life Tax-deferred savings benefit if premiums are paid 3 variations of permanent insurance: whole life, universal life and variable life include investment component Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time. Fixed premium over term No savings benefits Outliving policy or policy cancellation results in no money back Find matches Powered by HomeInsurance.com (NPN: 8781838) This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. HomeInsurance.com LLC services are only available in states where it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Bankrate Why Lemonade? It's a fresh twist on life insurance: easy, accessible and affordable. See more providers in Choose from insurers in Show More

What is credit life insurance

First, credit life insurance is not life insurance, says Kevin Lynch, assistant professor of insurance at The American College in Bryn Mawr, PA. Credit life insurance and life insurance are two completely different types of coverage. Simply put, credit life insurance is an insurance policy taken out by the borrower for the benefit of the lender. “It can be a little confusing,” Lynch says. “Although they’re two very different products, they often accomplish very similar results.” Of course, it does not help that the names are similar. Credit life insurance is also completely different from , which is designed to stay for the permanence of your life. Adding to the confusion, “credit life” is also a marketing slogan used with , with which insurance agents suggest that regular life insurance is a way to pay off the mortgage. According to Tim Gaspar, CEO of Gaspar Insurance in Encino, Calif., that slogan, which has no bearing on the nature of the policy, usually means the consumer will end up paying more. “If they’re in the market for life insurance and they hear that term, they should look elsewhere,” Gaspar says.

What does credit life insurance cover

Credit life insurance usually covers any remaining debt that a borrower has on a large loan. In a typical policy, the borrower will pay a premium — often rolled into their monthly loan payment — that allows the lender to be paid in full if the borrower dies before paying off the loan. Title to the underlying asset is then transferred free and clear to the borrower’s estate and, ultimately, to the beneficiaries of that estate. According to Lynch, credit life insurance is commonly offered with auto loans and home loans. For example, if you and your spouse owe a mortgage on your home, a credit life insurance policy could cover the remaining debt on that mortgage if one or both of you dies before the loan is paid off. This type of protection could be especially helpful if the remaining spouse relied on both incomes to cover the loan payments.

How much does credit life insurance cost

While credit life insurance rates will depend on the loan amount, these types of insurance policies can cost more than . There are multiple factors that impact how much a credit life insurance policy costs, including the type of credit, the type of policy and the loan amount. “It’s generally a little more with credit life insurance because there’s a greater risk associated with the product and that makes for higher premiums,” Lynch says. That higher risk comes into play because credit life insurance is what is known as a guaranteed issue product, meaning that eligibility is based solely on your status as a borrower. Unlike most life insurance policies, the applicant will not be asked to take a medical exam or disclose health details because what is being insured is the balance of the loan, not the life of the borrower, says Lynch.

Things to consider before buying credit life insurance

Since credit life insurance may cost more than regular life insurance and is intended to benefit the lender, there are a few things to take into consideration before buying it. You may want to consider buying credit life insurance if: You want to pay for coverage that is declining as you pay down debt. This is a good choice as you will be paying less and less protection each month. You cannot buy life insurance through regular channels because of the medical exam. Credit life insurance will not require a medical exam. If you cannot qualify for enough life insurance to cover outstanding debts that you may leave behind. Credit life insurance will help you cover the debts so that your loved ones will not be responsible for them.

Credit life insurance and taxes

When it comes to taxes, there is little for the consumer to worry about with credit life insurance, says CPA Ryan S. Himmel, founder of BIDaWIZ, an online service in New York that matches consumers with financial professionals. “Since the proceeds of the insurance policy go directly toward paying off the debt,” Himmel says, “and the insurance provider is essentially the beneficiary of the policy, not the family members, there wouldn’t be any implications to estate or inheritance tax.” If you or your spouse were to pass away while holding a credit life insurance policy, the survivor would not be obligated to pay any taxes on the policy payout that covers the insured debt. For example, if a couple has a credit life policy on their home loan, and one of them passes away, the policy will remove their obligation to pay further on that loan. This process will not require them to pay any new taxes.

Alternatives to credit life insurance

Credit life insurance is not the only option for insuring your debts in the event of an untimely death. People who do not want to obtain credit life insurance might want to consider one of these alternatives:

Term life insurance

might be a good option for those who only want coverage for a limited timeframe and who have debt that must be paid off if something were to happen to them. Term life insurance is commonly offered in 5, 10 and 15 year terms, but may be offered for longer terms, such as 20 or 30 years. A term life insurance policy is generally less expensive than a credit life policy as well.

Savings accounts

If you can cover your debt with money in an existing savings or investment account, your lender may not require credit life insurance. Ask your lender if this is an option for you. Keep in mind, however, that if you dip into that account for other purposes and the balance drops below the amount you need to cover that loan, your estate may still be responsible for the loan balance if you pass away.

Frequently asked questions


Does credit life insurance require a medical exam
No, as credit life insurance is covering a loan instead of a person, are not required.
Do you owe taxes when your credit life insurance pays off your debt
In most situations, you will when your credit life insurance policy goes into effect to cover your loan.
Do exclusions apply to credit life insurance
Rarely. Since the policy is covering a loan instead of an individual, exclusions are far less common than with traditional life insurance.
How much credit life insurance do I need
The amount of credit life insurance you need will vary based on your outstanding debt. For example, if you opt to purchase credit life insurance on your new vehicle, you will need the policy to cover the remaining cost of that vehicle.
Is there a maximum amount of credit life insurance I can purchase
Because credit life insurance specifically exists to cover the remaining debt on a loan, the maximum amount of insurance typically cannot exceed the amount of your loan. However, maximum coverage amounts, which vary by state, may still exist to prevent excessive credit loans. SHARE: Jessie See has a year of experience writing for Bankrate, Reviews.com and other insurance domains. She has covered topics ranging from auto and homeowner’s insurance to life insurance. She has been writing professionally for over a decade with experience in a variety of different topics and industries. Prior to becoming an insurance writer, she worked as a legal assistant in the field of personal injury law and as a licensed sales producer at various insurance agencies. Maggie Kempken is an insurance editor for Bankrate. She helps manage the creation of insurance content that meets the highest quality standards for accuracy and clarity to help Bankrate readers navigate complex information about home, auto and life insurance. She also focuses on ensuring that Bankrate’s insurance content represents and adheres to the Bankrate brand. Kenneth Chavis IV is a senior wealth manager who provides comprehensive financial planning, investment management and tax planning services to business owners, equity compensated executives, engineers, medical doctors and entertainers.

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