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.
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.
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.
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