Most credit insurance policies are given at a decreasing term life insurance strategy. The premium paid on this policy is fixed while the amount covered reduces over time since the debt is being cleared by the insured. Companies are allowed to request life insurance on the life of creditors but have no say on what type of policy should be used.
Credit insurance is a policy that covers a person in debt against death, disability, or unemployment. In summary, the objective of such policies is to pay off the balance of the borrower’s debt in a circumstance where they can no longer clear it themselves.
Individuals are offered credit life insurance when they borrow money. This policy is most beneficial to your next-of-kin or the person expected to pay your debt when you pass away or can no longer meet up with this obligation.
It offers them protection from making any payments towards repaying such debt.
We should point out that credit life insurance is not the same as life insurance. Life insurance differs from credit life insurance majorly based on the purpose of the payout.
Beneficiaries can use the benefit gotten from life insurance any way they deem fit; however, the payout from credit life insurance is targeted at repaying outstanding debt in the event of your death.
| Credit Life Insurance | Life Insurance |
| Clears balance on debt when you die | Pays your beneficiaries a lump sum to use as they please in the event of your debt |
| Easier to process because they do not require a medical exam | Tends to reject applicants because of its stringent requirements |
Protects Joint-Borrower
When taking a loan or getting involved in any form of debt, you will be asked to provide a next-of-kin or guarantor who will take up the debt when you cannot.
A credit policy will protect your loved ones from bearing the burden of this debt should you die or become disabled.
Unlike regular life insurance that pays out a death benefit that beneficiaries can use as they deem fit, credit policies are specifically aimed at clearing outstanding debt.
Safeguard You From Unforeseen Tragedies
Credit policies are designed to do more than clear your outstanding debt in the event of your death. Different policies exist to protect you from all manner of tragedies, such as becoming disabled or losing your job.
There is also a credit policy that protects your property from destruction; this could take the form of having your car stolen or your home wrecked due to natural disasters.
Whatever the case, there is a credit policy to safeguard you from most of life’s unforeseen tragedies.
Easy To Process
The wonderful thing about credit policies is that they are easier to process than regular insurance policies.
Standard insurance policies require medical examinations and other details before they offer you a policy, and you may be denied a policy by the end of the day. Credit policies have less stringent requirements and are less likely to reject giving you a policy.
There are five (5) types of credit insurance policies; four are aimed at individuals, while the last one targets businesses.
Credit life insurance is a policy where your debt is paid off when you die. This prevents your loved ones from bearing the burden of repaying your debt.
The name of this policy paints a clear picture of how it works; your card issuer will pay you a specific amount over a period if you become disabled.
Certain conditions may apply, like being disabled for a certain amount of time before you can claim benefit, or there may be a waiting period before the payment kicks in.
Life is an unpredictable place, such that anything can happen without a trigger. People are laid off from their jobs due to no fault of theirs. Sometimes this happens for reasons beyond their control.
The insured will receive a minimum amount as payment for being unemployed with unemployment insurance. This policy doesn’t apply to people who quit or are fired from their current jobs.
It is also important we mention that this policy may not take effect immediately; you may have to be unemployed for a certain period before the payments flow in.
We know how to get a loan from financial institutions; depending on the nature of your loan, most institutions will ask for collateral to process your loan request.
This type of insurance policy typically covers any damage to your property in the event of theft, accidents, and even natural disasters.
Trade credit insurance targets businesses that offer their services or products to consumers on credit. It protects them from the risk of customers refusing to pay their debt in the event of insolvency. While this isn’t the only event covered by this insurance policy, it is the most relevant. This insurance policy’s nature also gives insight into why it is available to businesses only.
Frequently Asked Questions
Credit life insurance aims to cover the outstanding balance on your debt when you die, protecting your loved ones from paying to repay the debt.
Credit life insurance is right for you if:
1. You need coverage that declines over time as you clear your debt
2. You cannot purchase regular insurance due to their complex requirements, such as the medical exam
3. The life insurance you qualify for cannot cover the amount of debt you will leave behind
Conclusion
Credit life insurance is a good investment for anyone who wants to die before repaying all their debts. The issuer will cover all debts left so your family will not have to bear the burden of doing so in your absence.
Sources
What type of life insurance are credit policies issues as