What Is Credit Life Insurance Used For?

  1. 0 POINTS
    dmrozek
    Ann Arbor, MI
    Credit life insurance is used to guarantee payment of a debt.  It was very common at one point in time for a lender to sell credit life insurance to their customers.  The way it worked was for the death benefit to start at the entire amount of the loan and decrease as the amount owed decreased.  If the customer died, the finance company collected the amount due from the insurance company and the debt was paid off.  While, on the surface, this seemed like a good idea, in practice, it wasn't quite so good a deal.  If you applied for term life insurance at the level amount of your loan, you could actually buy a lot more life insurance for the same price, and it never decreased.  So, if you died, your beneficiary had the control over the death benefit and it was larger.  This dirty little secret got out and, today, credit life is all but extinct.  That doesn't necessarily mean it's a bad thing, it was just abused and used as a profit center for car dealers and banks.  If you really want to protect a debt, talk to a good agent and find the right coverage for your needs.
    Answered on November 20, 2013
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  2. 11783 POINTS
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    Larry GilmorePRO
    Agent Owner, Gilmore Insurance Services, Marysville, Washington State
    What is credit life used for? Well mainly credit life is used to help secure a debt repayment in the borrower dies before the debt is repaid. Credit life usually pays the financial institution to cover any remaining debt the insured may have with them. Credit life is pretty expensive per dollar of coverage provided, but most credit life plans accept anyone based on the amount of money borrowed. Credit life is great for those whose health would make the direct purchase of life insurance impossible.
    Answered on October 9, 2015
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