It's a debatable issue. More often than not the lender will insist you to get the credit insurance whenever you take a loan. Its because credit insurance will cover his losses in case you miss out installments due to some unavoidable reasons like- death, unemployment, disability and so forth. But trust me, if you can manage your finance well you may not even require to purchase credit insurance at all. Therefore, you should ascertain your need before you actually purchase it.
Whenever we talk of credit insurance, we definitely mean the loan & also the coverage as per the loan amount & the term of the loan taken. Now one thing you need to remember that if you have a good amount of life & disability coverage then you'd rarely look for it! Thanks ClergymanM _________________ Register Now to have your Insurance queries solved.
Posted: Thu Nov 08, 2007 1:58 pm Post subject: Credit Insurance
Hi colorman
First of all, I'm not sure whether you are referring to Credit Life Insurance or Disability or both.
The common thread with all "Credit" type insurance is that they are all extremely over-priced.
If your lender requires some type of life insurance to cover the loan amount in the event of your death, then just buy an individual life insurance policy and make the lender a beneficiary for the loan amount.
Obviously, you must meet underwriting guidelines to buy life insurance, i.e. age, medical condition, etc.
The beneficiary designation would be something like this:
"XYZ Bank, as far as their interest may appear". The reason for this wording is because your outstanding loan amount will decrease as you make payments and you don't want to leave the bank a flat amount of money in the event of your death.
You can probably buy an individual life insurance policy for about a third of what the lender would add to your loan if you bought the insurance from them. By the way, they would also charge you interest on the insurance premium.
The same would hold true for disability coverage. I haven't seen many lenders require this type of insurance coverage, but yours may.
Generally, it is the "borrower" who is concerned about making sure the payments are made in the event of a disability.
I personally have never bought any type of "Credit" insurance from a lender and the only situation where I would is if I were totally uninsurable, then I might consider it.
Sorry colorman, but I guess I had a brain freeze and had to come back in for a little editing.
You may also have existing life insurance and if so you can make a beneficiary change to show the same beneficiary designation as above.
Example: $50,000 life insurance policy and $10,000 loan - the beneficiary would look something like this:
"XYZ Bank, as far as their interest may appear. Remainder to
My Spouse."
When we were very young and purchased our first few cars/home, we were 'suckered' in to credit life. No more though, you see (someone please correct me if I'm wrong), credit life is decreasing meaning it is the same as the loan payoff, but the premiums do not decrease. So if you die owing 200.00 that's all that's paid. Ins. Maze has given good advise, and I'd add even if you bought a 'term' policy until the note is paid at least it is going to pay the full death benefit regardless of the loan balance, and be less in premium. All the 'smart' financial guys say that credit life is a rip off. Also the lender makes a pretty good commission on these policies as well. Got that little nugget from a friend that is a vp of a bank, and another car dealer that told me they push this because the commission is huge...
Or maybe you are talking about something totally different? Maybe PMI, or some insurance that protects your credit from tampering like identity theft?
