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Consumer LAW PA Consumer LAW PA
  • Serving the Philadelphia Metropolitan Area
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Is Credit Life Insurance Necessary For The Average Consumer?


Getting life insurance coverage is a good financial planning move for many people. A life insurance policy can help the insured person’s family members or friends after the insured’s death. However, there is one kind of life insurance policy that consumers should be careful about; this is the credit life insurance policy.

Unlike most other life insurance policies, a credit life insurance policy does not benefit an individual beneficiary who is a friend or family member of the insured, instead, the insurance money is used to pay off a debt owned by the insured person.

While the credit life insurance may be advisable for some consumers for various reasons, when a lender requires a consumer to take out a credit life insurance in order to be approved for a line of credit, it can be a sign of predatory lending. Credit life insurance is voluntary for the consumer and cannot be added onto a loan without the consumer’s approval. In some cases, the information on opting out of the insurance may be buried in the paperwork that the consumer receives when signing the loan.

One reason that consumers should rethink credit life insurance is the fact that the value of the policy decreases over the time the policy is in effect, while the premiums remain the same. This is because the payout decreases as the person pays down the debt. For example, a person owes a mortgage debt of $100,000, and takes out a credit life insurance policy for $100,000. If the person dies years later, the policy will not be worth $100,000, it will be worth the balance of the mortgage.

Another reason why credit life insurance is not recommended is because in many cases it is unnecessary. When a person dies, any personal debt that is not cosigned or otherwise shared with another person, dies with the person. Therefore, the person’s family is not left on the hook for the balance of the loan. For the situations where a debt would survive the consumer, it is a better idea to get a different type of life insurance that would be paid out directly to the person who would be left responsible for the debt. With most other types of life insurance policies, the payout amount will remain the same; therefore, there may be something left for the beneficiary after paying off the debt.

If a consumer decides to take on credit life insurance, the consumer should try to pay the premiums separately, and not have them rolled into the loan. Rolling the premiums into the loan will mean that the consumer pays interest on the premium payments. The consumer will actually be paying even more for the insurance.

Contact Us for Legal Assistance

When looking for a loan or a line of credit, it is important to research the terms offered and read all the details of the loan in order to avoid predatory lenders. If you believe you were a victim of predatory lending, contact an experienced Philadelphia predatory lending lawyer at the law firm of Louis S. Schwartz, Attorneys at Law.


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