Credit Life Insurance

Is There an Age Limit For Credit Life Insurance on a Car Loan?

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Bill's Answer: Answered by Mark Cappel

Credit life insurance is a form of term life insurance. Credit life insurance can be purchased when getting a loan for a vehicle (such as a car or truck), mortgage, or unsecured debt including credit card debt.

As the balance of the loan decreases, the amount of the credit life insurance decreases. If the borrower dies during the term, the lender is the beneficiary of the insurance contract. The pro of credit life insurance is if the borrower dies the loan is paid and the estate of the deceased receives an asset free and clear. The item is therefore an asset, as opposed to an asset encumbered by a liability that may exceed the value of the asset.

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The cons to credit life insurance concern its value. Life insurance tied to a loan can be a poor value. The borrower buying term insurance on the open market will almost always find greater coverage for the same cost, or the same coverage for less by comparison shopping term life policies. Life insurance is a poor value if the borrower has no dependents and does not wish to leave assets to his or her estate. Some credit life insurance policies do not pay if the borrower dies from a pre-existing condition.

Generally, a lender may not require a borrower to buy credit life insurance as a condition for being approved for a loan. If the finance person writing the loan insists this is the case, check with the insurance commissioner in your state before agreeing to buy credit life insurance. In most states, you may cancel credit life insurance during the term of the contract.

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You asked about the age of the borrower. There is no universal rule concerning age limitations on credit life insurance contracts. Some policies end when the borrower reaches the age of 70. However, this is not a hard-and-fast rule. Review the credit life insurance policy terms and conditions carefully before signing the agreement. In particular, watch for limitations on pre-existing conditions and the maximum age covered.

See the Insurance page to learn more about auto, home, and health insurance.

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Comments (5)

Tracy S.
Rosenberg, TX  |  April 23, 2014
I have already asked this question, but I may have posted it in the wrong category. My in-laws purchased a vehicle in October 2013. My father-in-law is listed as the buyer and my mother-in-law as the co-buyer. They purchased credit life for the buyer. My FIL unexpectedly passed this month. Do you know if the credit life covers the vehicle with my MIL listed as Co-Buyer?
April 23, 2014
The answer to your question is found in the contract for the credit life insurance the co-borrower signed. We have not read the contract, so it would be inappropriate for us to offer an opinion either way.

What to do? File an accurate and complete claim. In other words, do not hide the fact the other borrower is alive. If the insurance benefit accrues when one borrower passes away, then it was worth your while to file a claim.
Ann I.
Wadesboro, NC  |  July 12, 2011
if the lender is the beneficary does the 2nd beneficary get the assets
July 13, 2011
The answer to your question depends on the terms of the insurance contract. Review the insurance contract the borrower signed for the answer to your question.
Ann I.
Wadesboro, NC  |  July 13, 2011
The lender said my brother left me as the second beneficiary and that I will get the assets after credit life pay them and I will receive the title to the truck.
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