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By Mike Heuer

Whenever you finance a car or home, if you purchase insurance protection for the loan, you’ve just bought a term life insurance policy. More commonly called credit life insurance, this form of term life insurance protection often is required before lenders will authorize a loan, and many car salesmen try to push overly priced term life insurance policies when closing on a vehicle while ensuring you it’s only to protect your credit. Even the insurance you might have to continue your credit card payments if you lose your job could be considered a form of term life insurance.

Credit life insurance is a type of decreasing term life insurance and protects creditors such as banks. As the borrower, the insurer pays the credit term life insurance premium so the loan balance is covered in in case he or she should suffer an unexpected tragedy and die or otherwise become incapable of paying off the loan due to a covered peril. With credit term life insurance, the policy’s face value decreases incrementally as the loan payments are made until the balance is zero.

If you have less than a 20 percent down payment for a home, the mortgage company always insists the borrower obtain term life insurance protection for the loan to help ensure against a potential default. Mortgage term life insurance protection is the same as credit term life insurance and fulfills that need when you want to buy a home. Of course, even if you have more than the requisite 20 percent down payment for your home, protecting your investment with some form of credit term life insurance always is a good idea. Often times, a decreasing term life insurance policy is the most affordable option.

With credit term life insurance, the sooner you pay off the debt obligation, the more you can save on your insurance coverage as well as loan interest. When the insured parties pay off loans early, the premiums for the remaining duration of the credit term life policy are refunded to the policyholder. And if your credit term life insurance includes a provision for accident and health, the insured could receive a monthly income payout if disabled by a covered peril.