Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Credit Life Insurance

Credit life insurance is a type of policy that pays off your mortgage, or another pre-determined debt, in the event of your death. The policy amount goes down as your debt goes down.

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This type of policy is not for everyone or every circumstance, but it does provide important coverage to those who qualify. The following article will provide more information about credit life insurance as well as other options available.

How does credit life insurance work?

Credit life insurance is typically for those who have no other life insurance policy. When you choose a credit life insurance policy you decide what single debt you want paid off.

In most cases, people choose their mortgage, but it could also be a credit card, a vehicle loan, or a student loan. The life insurance company writes the policy for the amount that you owe on the debt you have chosen and that is the debt that will be paid off in the event of your death.

It is important to note that as your debt goes down, so does the amount covered. The life insurance company will reduce your payout each month by the amount of your monthly payment to your debt.

However, your premium rate will stay the same. So when you purchase a policy for say $20,000 and in several years you reduce that debt to $15,000, your premium rate will stay the same. Since you designate the policy to cover a particular loan, the insurance company pays out your benefit directly to the company that owns your loan.

Because of this, many people choose to go with a different type of life insurance policy that gives them more for their premium cost. However, if a credit life insurance policy is the only type of policy that you can afford and the only coverage you have, then it is better than going without any coverage. This is especially true if you have a family. A credit life insurance plan can secure, at the very least, the home that they live in, in the event of your death.

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What are some other options besides credit life insurance?

Credit life insurance is not for everyone. There are other options available that offer more comprehensive coverage. A traditional life insurance policy allows you to consider all of your debts instead of just choosing one to focus on.

When you purchase a traditional whole life or term life insurance policy, the company will ask you what amount of coverage you would like to purchase. The simplest way to come up with this amount is to look at all of your debt and decide how much you want to leave your family or beneficiary is addition to the total debt you need covered.

For example, if your total debt including mortgage, credit cards, student loans, car loans, and other debt totals $80,000, you can get a policy for $80,000 plus the amount you want to leave that will not be used for debts. Be sure to include funeral expenses. If you can afford it, this is a better option than purchasing credit life insurance because it covers more and the policy amount does not decrease as it does with a credit life insurance policy.

Another option is mortgage insurance. Many mortgage companies offer mortgage insurance when you purchase your home. In fact, some loan companies or banks may even require mortgage insurance. Mortgage insurance is insurance that pays off your mortgage in the event of your death.

Make sure you don’t have this coverage already; if you do then a credit life insurance policy to cover your home is not be necessary. If you are looking solely to cover your home, you may want to compare mortgage insurance to credit life insurance and see what the better deal is for your situation.

Remember, having some coverage is better than having no coverage so begin somewhere. If all you can do at first is credit life insurance, purchase a policy. As your financial picture changes and your loan is reduced, you can change your policy to reflect your new circumstances as needed. Be sure to use a life insurance company that understands your needs and matches you to the right policy to meet those needs.

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