November 4th, 2010
Four Things You Should Know About Credit Life Insurance
- Credit life insurance is designed to pay off the balance of a loan in the unfortunate case of death of the borrower. Not to be confused with standard life insurance, it’s important for consumers to be aware of the many credit life insurance options out there so they can make the best decisions possible for their estate.
Homeowners should know and understand the following facts about credit life insurance policies:
Credit life insurance can be offered on automobiles or home loans. “In a normal policy, the borrower pays a premium, which is often included in their monthly loan payment,” says Larry Flick, CEO of Prudential Fox & Roach. “If an unforeseen event does occur, the title to the asset goes free and clear to the borrower’s estate and its beneficiaries.”
Standard life insurance is usually marketed as a way to pay off an outstanding mortgage, but the consumer will usually end up paying more this way.
Although pricier, credit life is a sure shot. The price of the policy will depend on your loan amount, but they may come with pricier premiums. Higher risk is involved because these policies are a guaranteed issue product — eligibility is based solely on your status as a borrower. Applicants will never be asked to take a medical exam or disclose health records because the balance of the loan is what’s being insured, not the life of the borrower.
Some creditors may require credit life insurance. “Generally, buyers without a down payment of 20% may be required to buy credit life at the lender’s insistence to get the loan,” says Flick. Over time, a borrower will increase his or her position of equity. Once this crosses the 20% mark, the borrower can then ask to cancel the policy, according to Bankrate. “It’s still a great idea, because if something happens to you, your family will still be able to make the mortgage payments,” says Flick.
Exclusions rarely come into play. Remember, credit life is insuring the asset and not the person, therefore, exclusions generally aren’t an issue. Under regular life insurance policies, coverage exclusions are multiple and vary state-to-state. “Credit life is a safer bet, in many ways, and regardless, is a great option home buyers and homeowners should take into consideration,” says Flick.