What is credit life insurance?

Credit life insurance is a type of insurance that will pay off a loan if you die before the debt is repaid.

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Amanda ShihEditor & Licensed Life Insurance ExpertAmanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.&Brian ActonContributing WriterBrian Acton is a contributing writer at Policygenius, where he covers insurance and finance. His work has also appeared in The Wall Street Journal, TIME, USA Today, MarketWatch, Inc. Magazine, and HuffPost. 

Edited by

Julia KaganJulia KaganContributing EditorJulia Kagan is a contributing editor at Policygenius, where she specializes in life insurance. Previously, Julia was the senior personal finance editor at Investopedia for nearly a decade, a vice president and editorial director at Consumer Reports, the editor of Psychology Today, and the vice president of content at Zagat Surveys.
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Reviewed by

Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Updated|2 min read

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Credit life insurance is a type of life insurance policy that pays off a loan if you die before settling the debt. Your lender is the sole beneficiary of your credit life insurance policy, and the death benefit only pays for the loan covered by the policy.

Mortgage protection insurance, which covers the balance of your home payments if you pass away, is one of the better-known uses of a credit life policy.

What are the pros & cons of credit life insurance?

Pros of credit life insurance

  • Covers a debt that outlives you when you can’t qualify for traditional life insurance

  • Most policies offer guaranteed approval with no medical exam

Cons of credit life insurance

  • Premiums are more expensive than comparable term life insurance policies

  • Death benefits only pay the lender and won’t go to your loved ones

  • Funds you use to pay for premiums could instead be used to pay down your debt while you’re alive

How does credit life coverage work?

When you take out a large line of credit like a home or business loan, you may be offered the opportunity to buy credit life insurance. Because credit life policies are generally sold by the lender alongside the loan, the premiums can often be included in your loan payments.

You won’t need to go through the underwriting process to qualify for credit life coverage, making approval easier if you have health conditions that might disqualify you from buying a traditional life insurance policy.

How much does credit life insurance cost?

The premiums on a credit life policy depend on the size and type of loan you’ve taken out. Bigger loans will translate to higher premiums and vice versa.

However, credit life premiums are typically higher than rates for a comparable term life policy. That’s because of the lack of a medical exam — without evaluating your health, the insurance company is taking on more risk by insuring you.

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Who should get credit life insurance?

Credit life insurance protects your estate, co-signers of the loan, and your spouse (if you live in a community property state) from being responsible for your debt when you die. 

If you have debts that might outlive you — and you don’t qualify for term or permanent life insurance — a credit life policy is worth exploring. 

But if you do meet underwriting standards for traditional life insurance, you’ll get more value for your money by purchasing a standard policy. It will pay out directly to your loved ones and can finance more than debt repayment. Also consider the other alternatives for loan repayment.

“It’s important to understand how loan insurance works,” says Bola Sokunbi, founder and author of Clever Girl Finance. “Credit life insurance can pay off any outstanding debt if you were to pass away. However, the funds you’d use to pay for the policy’s premiums might better serve you if they are going toward reducing your actual debt obligation while you are alive, healthy, and able to work.”

Is credit life insurance worth it?

For the average person, a credit life policy simply doesn’t offer as much value as traditional life insurance. Even if you have existing health concerns, don’t assume that you won’t qualify for a more affordable term life policy.

An independent insurance broker like Policygenius can help you find the right company for your circumstances.

More term life insurance options

Authors

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Brian Acton is a contributing writer at Policygenius, where he covers insurance and finance. His work has also appeared in The Wall Street Journal, TIME, USA Today, MarketWatch, Inc. Magazine, and HuffPost. 

Editor

Julia Kagan is a contributing editor at Policygenius, where she specializes in life insurance. Previously, Julia was the senior personal finance editor at Investopedia for nearly a decade, a vice president and editorial director at Consumer Reports, the editor of Psychology Today, and the vice president of content at Zagat Surveys.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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