YOU ASK:

What is credit life insurance and who needs to buy it?

WE ANSWER:

To answer the second question, those who have debts or loans will do well to have credit life insurance.

This kind of insurance is specially crafted to help the debtor's family pay off a debt in case the insured dies. When the insured dies before the debt is paid, the insurance will pay for the balance. In most cases, the life insurance coverage decreases over time, based on the projected decrease in the debt as it is slowly being paid off.

When you apply for a loan, most creditors will require that you get credit life insurance in order to protect their "investment" - the money they loaned to you. But, not only does this protect one's creditors, it can also protect the dependents.

For instance, if the loan being covered by the credit life insurance is a mortgage, can you imagine if there is no insurance for this? Your family may not be able to give for the monthly mortgage payment when you are not around anymore. As a result, they may be faced with foreclosure and find themselves without a home. With the help of credit life insurance, your family will be able to pay for the mortgage and be worry-free in that aspect.

Credit life insurance usually is composed of term life insurance, and it is designed to last for as long as the debt lasts. Also, premiums are cheaper since the policy amount decreases over time.

Depending on the credit life insurance you buy, you may also enjoy additional coverage for disablement. This means that when you become disabled as a result of an accident or a sickness and can no longer work and earn, the insurance will kick in to provide for the payments for a specified number of months. There are even policies that cover involuntary unemployment.

It is important to take note, though, that the beneficiary in this case would be the creditor and not the insured's loved ones. Upon the death of the insurance, the creditor will receive the insurance proceeds and this will be credited as payment for the loan. If the insurance proceeds exceed the balance of the debt, the difference should be give to the estate of the insured.

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