Quite often I do come across people who'd say that it's absolutely necessary to have life insurance in order to apply for a student loan? Is it a requirement?
Total Comments: 14
Posted: Mon May 16, 2011 12:29 am Post Subject:
isn't there a clause in ANY kind of loan you have that "in the event of your death, the loan is paid off?"
In a basic loan contract (secured or unsecured debt), NO. Why are new homeowners often suddenly concerned about having life insurance? Because there is nothing in their loan contract like your statement above.
With secured debt, the creditor has the right to repossess any property in which it has a financial interest (homes, cars, furniture, jewelry, etc) in the event of non-payment. If the creditor seizes the property and sells it for more than the loan principal & interest, the balance is payable to the debtor (same as if the debtor sold the property and used some of the proceeds to pay off the loan.
Unsecured debt is essentially uncollectable from a dead person. A claim must be made against their estate for any unpaid debt. If there is no money in the estate, tough beans. However, many times unsecured debt is jointly applied for or used, in which case a living co-borrower would remain liable for the debt of the deceased co-borrower.
Federally-guaranteed student loans do not require credit life insurance as a precondition to borrowing. I don't know of any private sources of student loans (meaning from recognized lending institutions, not some guy in a trenchcoat in a dark alley) that precondition the loan on having life insurance.
Although a lender could have a lending policy that requires also having some form of life insurance to guarantee repayment of the debt (not uncommon in some business uses of life insurance), state insurance laws prohibit lenders from requiring a person to obtain the insurance only from the lender's choice of agent or insurer.
Posted: Thu May 19, 2011 02:21 pm Post Subject: Life insurance on student loans
I've been reading this discussion with interest, as we just took out a life insurance policy on one of my stepdaugthers, to pay off her student loans in case she dies. (Sad thought). The insurance was very cheap, but now I'm wondering. Maybe we should have checked for the clause that "in the event of death, the loan is paid off." Who knew? The information about the polcy certainly didn't point this out!
Posted: Fri May 20, 2011 05:24 pm Post Subject:
I agree with Max.
A basic home/business/vehicle/student loan will very seldom - if ever - have a "pay-off" provision in the event of the borrower's death.
Ideally, any amount required to fulfill a financial obligation - pay off the loan, would be paid to the lender when the insured's (borrower's) heart stops beating. Now we're right back to some form of life insurance - which requires a premium. And someone needs to make that payment - in every single case. If the borrower isn't making the premium payment, the lender is.
I have seen cases where lenders are happy to provide "financial completion coverage" (life insurance) to their "more sophisticated" clients / borrowers free of charge. However, upon closer examination, I've noticed higher rates of interest on these contracts.
Posted: Sun May 22, 2011 04:30 pm Post Subject: insurance
I have a car loan that has a clause in it about Disability Insurance. If anything hapen to me, my loan is automatically paid off. Is that NOT te ame thing as 'in event of my death'?
Posted: Mon May 16, 2011 12:29 am Post Subject:
isn't there a clause in ANY kind of loan you have that "in the event of your death, the loan is paid off?"
In a basic loan contract (secured or unsecured debt), NO. Why are new homeowners often suddenly concerned about having life insurance? Because there is nothing in their loan contract like your statement above.
With secured debt, the creditor has the right to repossess any property in which it has a financial interest (homes, cars, furniture, jewelry, etc) in the event of non-payment. If the creditor seizes the property and sells it for more than the loan principal & interest, the balance is payable to the debtor (same as if the debtor sold the property and used some of the proceeds to pay off the loan.
Unsecured debt is essentially uncollectable from a dead person. A claim must be made against their estate for any unpaid debt. If there is no money in the estate, tough beans. However, many times unsecured debt is jointly applied for or used, in which case a living co-borrower would remain liable for the debt of the deceased co-borrower.
Federally-guaranteed student loans do not require credit life insurance as a precondition to borrowing. I don't know of any private sources of student loans (meaning from recognized lending institutions, not some guy in a trenchcoat in a dark alley) that precondition the loan on having life insurance.
Although a lender could have a lending policy that requires also having some form of life insurance to guarantee repayment of the debt (not uncommon in some business uses of life insurance), state insurance laws prohibit lenders from requiring a person to obtain the insurance only from the lender's choice of agent or insurer.
Posted: Thu May 19, 2011 02:21 pm Post Subject: Life insurance on student loans
I've been reading this discussion with interest, as we just took out a life insurance policy on one of my stepdaugthers, to pay off her student loans in case she dies. (Sad thought). The insurance was very cheap, but now I'm wondering. Maybe we should have checked for the clause that "in the event of death, the loan is paid off." Who knew? The information about the polcy certainly didn't point this out!
Posted: Fri May 20, 2011 05:24 pm Post Subject:
I agree with Max.
A basic home/business/vehicle/student loan will very seldom - if ever - have a "pay-off" provision in the event of the borrower's death.
Ideally, any amount required to fulfill a financial obligation - pay off the loan, would be paid to the lender when the insured's (borrower's) heart stops beating. Now we're right back to some form of life insurance - which requires a premium. And someone needs to make that payment - in every single case. If the borrower isn't making the premium payment, the lender is.
I have seen cases where lenders are happy to provide "financial completion coverage" (life insurance) to their "more sophisticated" clients / borrowers free of charge. However, upon closer examination, I've noticed higher rates of interest on these contracts.
Posted: Sun May 22, 2011 04:30 pm Post Subject: insurance
I have a car loan that has a clause in it about Disability Insurance. If anything hapen to me, my loan is automatically paid off. Is that NOT te ame thing as 'in event of my death'?
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