Credit life insurance may be a good way to ensure you can make a final payment to your lender in the event that you die before paying off your credit cards or other debt. It is one of four forms of credit insurance that is available to borrowers. To learn more about how it can benefit you, let’s take a closer look.
What is Credit Life Insurance?
Credit life insurance can be compared to a term life insurance policy in that it pays your beneficiary upon your death. However, the major difference in this type of insurance is who your beneficiary is. In a term life insurance policy, you can name your beneficiary as a family member, friend, or anyone else. But when insuring your credit, you are essentially naming your lending agency as the beneficiary with the understanding that upon your death, the insurance company will be making a final payment to your lender.
How Does it Work?
Because so many people borrow large lump sums of cash in order to finance a mortgage, auto loan, or credit cards, it has become a necessity to ensure that in the event that something happens to the borrower, the debt is covered. As a result, various forms of credit insurance, including credit life insurance, were created.
How it works is when you obtain your credit from a lending agency, you may decide that you want to insure your balance. From that point forward you will pay a monthly premium. Then if your untimely passing does occur, the company insuring your balance will make a payment to your lender. In some cases, the proceeds are greater than the debt that you owe. If this occurs, the remaining proceeds will be paid to the borrower’s estate.
It’s important to know that credit life insurance is not a requirement and cannot be forced upon you by a lending agency. If your application is denied as a result of your refusal of this insurance, or you see that it has been tacked on to your balance without your consent, you should take steps to report that agency.