Credit Life Insurance Definition
Individuals use credit life insurance policies to cover the outstanding debt on a loan. As the loan decreases, so does the plan until they both reach maturity, and the entire amount of the loan is due.
Credit Life Insurance Meaning
A credit life insurance policy is usually put on loans like a mortgage. Many adopt credit life insurance so their loved ones will not have to cover the cost of the mortgage or loan outstanding after their passing. The great thing for insurance companies is if the person lives to the maturity of the loan, then the amount gained through insurance payments is straight profit without having to account for any liabilities.
Credit Life Insurance Example
For example, George is 65 years of age. He just moved into a new house with a 15-year mortgage. But George has had health problems in the past. So he decides that he needs to invest in credit life insurance so that the mortgage burden will not be on his four kids. George ends up living throughout the entire loan; thus, the insurance plan has reached its maturity and won’t need to be exercised. It should be noted that if George had died during the time of the loan, then the insurance company would be required to pay out whatever amount that George owed on his mortgage. In this situation George’s debts would all be paid for without putting an unwanted burden on his kids.