What is credit life insurance? Most people have never heard of it let alone be aware that they may own it. Credit life is simply insurance coverage used to cover a debts should you die. Examples of some types of debts where you might find this type of coverage would be automobile loans, credit cards, or other revolving accounts from department stores, furniture companies, etc.
Initially it might sound like a good idea to have your debts paid off should you die rather than have you loved ones be stuck with the unpaid debts. The biggest problem with credit life is the extremely high cost of the coverage. Life insurance is priced on a per thousand cost basis. For example, a healthy 30 year old male could find a 10 year term plan with a coverage face amount of $100,000 in today's competitive life market for only $8.00 to $10.00 in monthly premium. Broken down into a cost per thousand basis means that the plan in the example is only costing between 8 to 10 cents per month per thousand dollars of coverage which is very inexpensive. Although the credit card company may only be adding a couple of dollars to the monthly bill to cover the outstanding balance, it's a very expensive way to purchase coverage. For example, if you pay an extra $2 per month to cover your $2000 credit card balance, you're paying nearly $1 per month per thousand dollars of coverage. It doesn't sound like much, but it's nearly ten times the cost of a competitive term life insurance plan.
Some other potential problems include the cost of credit life being added to the balance before interest is added. This is especially true of credit card and revolving accounts. That means that you could be paying interest on top of high priced life insurance! Another potential problem with credit life is that the creditor automatically names themselves as the beneficiary. There may be times when having a loan paid off immediately is not the desired result.
You simply should not purchase life insurance on a piece meal basis using credit life to cover outstanding debts. Here is a solution. Purchase enough insurance coverage with a competitive company to cover all of your needs under a single policy. Financial experts recommend 8 to 10 times your annual salary as an appropriate amount of coverage if you have responsibilities such as being married and having children. Having an appropriate amount of life insurance to cover loss of income, your mortgage and all of the other outstanding debts under a single policy is just good financial planning and the most economical way to do it.
Initially it might sound like a good idea to have your debts paid off should you die rather than have you loved ones be stuck with the unpaid debts. The biggest problem with credit life is the extremely high cost of the coverage. Life insurance is priced on a per thousand cost basis. For example, a healthy 30 year old male could find a 10 year term plan with a coverage face amount of $100,000 in today's competitive life market for only $8.00 to $10.00 in monthly premium. Broken down into a cost per thousand basis means that the plan in the example is only costing between 8 to 10 cents per month per thousand dollars of coverage which is very inexpensive. Although the credit card company may only be adding a couple of dollars to the monthly bill to cover the outstanding balance, it's a very expensive way to purchase coverage. For example, if you pay an extra $2 per month to cover your $2000 credit card balance, you're paying nearly $1 per month per thousand dollars of coverage. It doesn't sound like much, but it's nearly ten times the cost of a competitive term life insurance plan.
Some other potential problems include the cost of credit life being added to the balance before interest is added. This is especially true of credit card and revolving accounts. That means that you could be paying interest on top of high priced life insurance! Another potential problem with credit life is that the creditor automatically names themselves as the beneficiary. There may be times when having a loan paid off immediately is not the desired result.
You simply should not purchase life insurance on a piece meal basis using credit life to cover outstanding debts. Here is a solution. Purchase enough insurance coverage with a competitive company to cover all of your needs under a single policy. Financial experts recommend 8 to 10 times your annual salary as an appropriate amount of coverage if you have responsibilities such as being married and having children. Having an appropriate amount of life insurance to cover loss of income, your mortgage and all of the other outstanding debts under a single policy is just good financial planning and the most economical way to do it.