People often invest in life insurance policies to financially protect their dependents in the case of sudden death. Life insurance provides financial security, especially if your dependents rely on your income.
And one of the best things about life insurance is that when you pass away, your beneficiary doesn’t have to use the money from the policy to pay your debts. Your creditors cannot claim the death benefits that your beneficiary receives once you pass away to pay any outstanding bills.
But there are many types of life insurance. And speaking of credits, there is a type of policy known as credit life insurance. But what is credit life insurance?
Read more to learn about what this type of life insurance policy does and the pros and cons of this type of policy.
What Is Credit Life Insurance?
In ordinary life insurance policies such as term life insurance and universal life insurance, your beneficiary will receive the death benefit when you, the policyholder, pass away. And if you have any debts whatsoever, your creditors cannot claim the death benefits that are designated to your beneficiary.
However, in credit life insurance, death benefits are paid out to your creditors at the time of your passing. Rather than the death benefit going to your dependents, the money from your policy will pay off your creditors.
For example, let’s say you sign on a personal loan or you take out a mortgage loan. Getting credit life insurance makes sense if you want to pay off the loan once you pass away.
Most of the time, these policies are offered when you take out a loan or when you open a line of credit. This type of life insurance protects your creditors as it makes sure that they get paid even at the time of your passing.
Now, let us say that your spouse is a co-signer of your mortgage, and you have credit life insurance. Once you pass away, your co-signer, which is your spouse in this case, will no longer have to worry about paying your debts and credits.
The Benefits
Now, why should you get a credit life insurance policy anyway? There are a couple of reasons why.
For starters, it gives protection for joint and several liabilities and credits. Like in our earlier example, this type of policy protects your co-signer in debit and credit accounts.
Another good thing about this kind of policy is that there is no required medical exam. Usually, in life insurance policies, you will need to undergo a medical exam to get a life insurance policy.
Credit life insurance’s main goal is that your heir or children will not have to worry about your personal loans and debts. It mainly protects the lenders, but at the same time, it can also protect your dependents.
In conclusion, credit life insurance is a type of policy that pays your debts once you pass away.
