What is Credit Life Insurance?

Ken Black
Ken Black
Credit life insurance can pay off a home if one of the borrower dies.
Credit life insurance can pay off a home if one of the borrower dies.

Credit life insurance is a policy usually bought by a mortgagor, the person who owes the money, so that the property is protected in the event of the mortgagor's death. The credit life insurance policy will pay the outstanding balance of the loan in such a case.

Though there is an additional expense involved, many of those taking a mortgage believe credit life insurance to be a good investment for the protection of the rest of the family. If the major income producer dies, this would allow the mortgage to be paid off and the family would be able to keep the home.

A credit life insurance policy pays off the remaining balance of the mortgage, thus saving any threat of foreclosure. Some states may put a limit on how much of a balance can be protected through credit life insurance but generally this is an amount higher than the average home value in the state, which means most borrowers would be fully protected, should a claim ever be filed.

Borrowers may find credit life insurance an attractive option simply because it is one of the most reasonably priced life insurance options on the market. A number of factors make it cost effective. First, it is basically a term life insurance policy, only lasting the length of the loan at most. Second, because the amount of possible liability decreases each month, every month a payment is made means there is less risk for the insurance company to cover.

Credit life insurance can be purchased independently, but lenders can often offer a borrower a better rate than they could otherwise acquire. Lenders often buy such policies at a bulk rate because of the sheer number of policies they can help sell. Plus, lenders and insurance companies already have a pre-existing relationship.

In addition to policies for home mortgage, credit life insurance can be obtained for a number of other loans, both secured and unsecured. Taking out life insurance policies for car loans and credit card debt are a couple of very popular options outside of home mortgages.

Though credit life insurance usually requires no medical examination, qualifying for coverage is not guaranteed. Most companies require a medical questionnaire be filled out, as well as work requirements and age restrictions. Answering questions incorrectly could result in any claim being voided. As with nearly all life insurance policies, age is very important. Those 65 and older will likely find it difficult to purchase a policy.

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Discussion Comments


does credit life insurance pay the outstanding loan only in occasion of death? what about permanent disability, is there any benefit from the coverage?

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    • Credit life insurance can pay off a home if one of the borrower dies.
      Credit life insurance can pay off a home if one of the borrower dies.