Repay Your Debts With Credit Life Insurance
As a number of you have come to realize upon the passing of a loved one, many personal debt agreements have a written clause specifying that remaining balance of the debt is payable in full upon the death of the debtor. And much too often, this comes as a great financial burden to the remaining family members left to clean up the deceased's finances. Something to be aware of for both debtors and the surviving loved ones of debtors is that many debt agreements may offer credit life insurance on the balance of the liability.
One of the biggest problems with credit life insurance policies is that the party responsible for settling the debts of a deceased individual is often unaware of the policy. Rather than execute the death benefit of the policy and pay off the remaining balance of the account, the estate executor is forced to use other funds to meet the outstanding obligations. In situations such as this, once the payment is made, the credit life insurance policy is not longer effective. These policies are designed to name the creditor as the beneficiary and will not pay out funds to other parties.
Credit life insurance, although not altogether the most popular form of life insurance, is often offered by lending institutions upon the creation of the initial loan. Credit life insurance companies agree to pay off the remaining balance of an outstanding debt upon the death of the debtor. A good practice for anyone considering this type of insurance should be to attach documentation of the life insurance with the documentation associated with the debt. This way your executor will have the proper information to use the death benefit for its needed purpose. It is also a good idea to document your finances in detail and place it somewhere that others can access upon your passing.
Though these types of credit life insurance plans are more frequently attached to larger debt agreements such as mortgage payment protection insurance or sizable business transactions, some companies will also offer credit card life insurance. This insurance is exactly as it sounds, it provides death benefit to pay off the remaining balance of your credit card. One other variation of credit life is the credit life and disability insurance. This functions the same as credit life, but provides stipulations in the case of disability and not just death.
One of the primary arguments against credit life insurance is the fact that any type of insurance can be used to pay off your creditors. You can often find a cheaper term life insurance policy that will cover all of your debt payments. Take this general insurance approach can also allow your estate executors more flexibility with your funds. Rather than being contractually obligated to use the death benefit to pay off the remaining balance of one account, the executor would have the ability to use your general life insurance to pay off multiple sources.
If you really like the fact that your insurance has a lower premium because of the nature of the decreasing debt obligation, then you may want to consider something like a decreasing term life insurance policy. The premium payments are slightly lower because of the death benefit shrinks as time progresses. The theory is that over time you are paying down your debt obligation and therefore need less death benefit to pay the loan off.
Regardless of your decision, providing your heirs a way to meet your debt obligations is not only a prudent way to protect them after you are gone, but should be a required part of any estate plan. Credit life insurance may be a way for you to meet these obligation should you pass away during the repayment period.
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