Many people have paid for credit life insurance without understanding what it is or how expensive it can be. If you borrow money for any purpose, your loan payment may include a premium for credit life insurance.
Moneylenders such as banks, retailers, auto dealers, and finance companies sell credit life insurance to pay off your loan balance in the event of your death. Some lenders also sell credit disability insurance to cover your loan payments in the event you become disabled.
State laws vary, but some permit very high premiums on this type of insurance. A borrower’s health is often not a factor in being eligible for credit insurance, and therefore, the underwriters need to charge everyone higher premiums to cover the potential risks. The insurance premium is often added into the loan. This may make it harder for you to determine your actual cost.
Moneylenders may require that you have insurance to pay off the loan in the event of your death or disability. In most cases, however, you should have the right to buy a policy from another insurance agent or to assign the benefits from an existing policy. Your age, health, and size of the loan are all factors to consider in determining whether to use an outside insurance agent or to purchase the lender’s credit insurance.
Some lenders don’t require credit insurance if the loan is properly collateralized. When completing a loan application, ask what loan insurance, if any, is required. This will allow you time to review your best insurance alternatives before you actually sign for the loan.
If you would like assistance in analyzing a loan, or with other financial matters, please contact us. We are here to help you.
