Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Feb 11, 2021

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The Facts of Life

  • Credit life insurance is a type of insurance policy designed to pay off outstanding debts in the event of your death
  • The value of these policies decrease over time as the debts they are covering decrease as they get paid off, ideally, the value of the policy will hit 0 and your debts will be paid off
  • Credit life insurance is designed to protect your heirs from the burden of your debts and financial obligations
  • This type of insurance is often not even sold by insurance companies, but by banking institutions

Credit life insurance is an important protection to have if you want to protect your heirs, spouse, or a joint-borrower from the burden of your debts and financial obligations in the event of your death. Some lenders may even require you to carry this coverage in order to get certain loans.

Oftentimes, you won’t be purchasing credit life insurance from an insurance company. Rather, financial institutions like banks will be the ones to offer these life insurance policies.

Credit life insurance policies vary drastically from the more traditional life insurance policies you may be familiar with. We’ll explore the ins and outs of credit life insurance, and why it may be important for you to have.

If you’re ready to buy credit life insurance, enter your ZIP code above to find affordable credit life insurance policies in your area.

What is credit life insurance?

Credit life insurance is designed to pay off a person’s outstanding debts in the event of their death. The only thing that this type of insurance policy covers is a specific debt. For example, you could have a credit life insurance policy on your mortgage, car loan, or a line of credit.

Credit life insurance policies offer financial protection from lenders should you pass away before you are able to finish paying back all of your debt. This protection could be vital to your surviving family members. Let’s see why.

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Why should I get credit life insurance?

Who cares about paying back a loan when you’re dead, right? Well, in many cases your spouse, especially if they co-signed with you, will be responsible for your outstanding debts after you pass away.

Additionally, your estate may be forced to pay off outstanding debts before inheritances can be settled.

Credit life insurance can help protect the people you want to inherit your estate when you pass away. This type of insurance will also help protect anyone who co-signed the debt with you.

For example, let’s imagine your spouse co-signed the mortgage with you, but they couldn’t afford to pay the mortgage on their own. Without credit life insurance, your spouse would be responsible for the mortgage after you pass away.

Without credit life insurance your family and loved ones could be left in tight financial situations.

What type of life insurance are credit policies issued as?

There are no regulations that state credit life insurance policies are to be issued in one way or another. However, in almost all cases these life insurance policies are written as decreasing term life insurance policies.

As you pay back the debt that the credit life insurance policy is covering, the value of the benefit decreases proportionally.

For example, if you owe $25,000 to the bank and you have a credit life insurance policy, as you pay back your debt the overall coverage of the credit life insurance policy decreases to match the updated amount of the debt it is covering.

There is no law or regulation saying that you cannot get a whole life insurance policy to cover your credit, but many insurers won’t offer this type of coverage because whole life policies have a cash value that grows over time, and your debts are obviously decreasing as you pay them off.

What are the advantages of credit life insurance policies?

There are obvious advantages to protecting your children and spouse in the event of your death, but there are also additional advantages to credit life insurance policies.

First, there is usually very little question about your health. Many life insurance policies require a medical exam, but credit life insurance policies usually don’t. This is because they are often written as decreasing term life insurance policies so their value decreases over time.

It is oftentimes built into big loans, like mortgages, so you don’t even have to do anything in some cases to protect your family from your debt.

This can make your monthly payments higher so if you are concerned about this speak with your lender about the credit life insurance coverage in your loan.

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What are the disadvantages of credit life insurance policies?

They can be costly, especially if you don’t really require the protection these life insurance policies offer. If you already have renters or homeowners insurance, credit life insurance policies may not be necessary or overlap with your existing insurance policies.

Check out the average annual cost of credit life insurance versus term life insurance for $50,000 of coverage.

Average Annual Rates of Credit Life Insurance vs Term Life Insurance by Age
AgeCredit LifeTerm Life
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The above data comes from the State of Wisconsin Department of Financial Institutions. As you can see, credit life insurance can be more expensive than term life policies, and if you already have coverage you may not need credit life insurance.

The other major disadvantage of credit life insurance is that it only covers a specific debt. Credit life insurance will not pay out a benefit to your family or anyone else.

Credit Life Insurance: The Bottom Line

Credit life insurance can be a real lifeline to people with a large debt, but they may want to check and make sure this debt isn’t covered under an existing life insurance, renters insurance, or homeowners insurance policy that they may already have.

The good news is it is really easy to get credit life insurance policies in most cases. You won’t need to undergo a stringent medical exam or review to qualify for this coverage.

If you’re ready to buy credit life insurance, enter your ZIP code below to compare cheap credit life insurance rates in your area.