Credit Life Insurance

Credit life insurance may help you pay off debt upon your death. If you have co-signers, don't want your estate to pay off your debt, can't qualify for traditional life insurance, or live in a state with community property laws, credit life insurance may be a good option for you. Find more details below.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Jul 19, 2021

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Quick Facts

  • Credit life insurance is a policy that pays off your debt upon your death.
  • The value of a credit life insurance policy decreases with the balance of your loan.
  • Credit life insurance is often more expensive than other types of life insurance, and it may not be as beneficial to you.

Despite its name, credit life insurance is very different from other types of life insurance, such as term life insurance. Some may even argue that it isn’t life insurance at all.

So, what is credit life insurance? We’ll discuss this and more below. Keep reading to find out how credit life insurance works and whether it’s right for you.

If you need help finding life insurance, enter your ZIP code into our free quote comparison tool above.

What is credit life insurance?

Credit life insurance is a type of policy that pays off debt if a borrower dies. The coverage amount of the policy will decrease as the balance on a loan does. However, your premiums will stay the same throughout the lifetime of the policy.

Credit life insurance is a little controversial, since some will argue that it protects the lender more than it protects you.

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How does credit life insurance work?

Credit life insurance policies are often offered to individuals taking out a loan, especially auto loans or mortgages. The seller of the policy often highlights that the policy will protect your heirs from having to pay your debt after you die (more on this a little later).

The premium for your credit life insurance may be combined into your monthly loan payment. As you pay down your loan, the value of your policy will also decrease.

When you pass, the policy will be paid out to the lender to pay off the remainder of your debt.

How much is credit life insurance?

While there are no set prices for credit life insurance rates, we can give you an idea of how different factors can affect your premiums.

The premiums for credit life insurance are typically more expensive than regular life insurance. This is because credit life policies can be riskier than traditional life insurance due to two main factors.

First, there is no medical exam to qualify for credit life insurance. Second, if your premiums are included in your monthly loan payment, you could end up paying interest on those monthly premiums.

In general, your credit life insurance premiums will be based on your loan type and loan amount.

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Should I get credit life insurance?

For the most part, debt is not inherited. However, if a family member or spouse co-signs on a loan, they may have to continue making payments after you die. And, even if you don’t have a co-signer, your family could lose assets that you haven’t finished paying off.

Therefore, a credit life insurance could be helpful if you want to make sure your family does not have to continue payments and receives your assets with no strings attached.

Credit life insurance can also be helpful in the following states, where community property laws pass both assets and debts to your spouse:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

If you can’t qualify for a traditional life insurance policy, especially due to medical reasons, credit life insurance could be helpful to pay your debt after your death, since there is no medical exam.

However, unless you fall into one of the above categories of individuals, traditional life insurance is likelier to benefit you more.

What are the alternatives?

Here are a few alternative to credit life insurance that may offer the same benefits and more.

Term Life Insurance

Term life insurance is usually less expensive than credit life insurance. It is also more flexible. You can use these policies to pay off debt after your death using the death benefit that is paid to your beneficiaries rather than lenders.

Your death benefit also won’t decrease as the policy goes on. Depending on the amount of your debt, this could mean your beneficiaries are left with some money to use for other purposes.

Other Life Insurance

If a lender is hesitant to give you a loan because of your lack of credit life insurance, you could use an existing policy to provide proof that the debt would be paid off upon your death.

You may need to provide proof of any existing life insurance policies, and you should be comfortable with using a portion of the death benefit toward your debt.

Savings Accounts

While savings accounts may not yield as much as an investment such as life insurance, you could still use this as an asset toward your debts once you pass.

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Summing It Up

Credit life insurance is a policy that can help you pay off remaining debt upon your death. It may be offered with loans, especially auto loans or mortgages.

The value of your credit life insurance will decrease with your loan balance. It is paid directly to the lender upon your death.

Unless you want to protect a co-signer, make sure your estate doesn’t pay for your debts, live in a state with community property laws, or can’t qualify for traditional life insurance, it may not be the best option to buy credit life insurance.

To find a life insurance policy that’s right for you, use our free quote comparison tool below by entering your ZIP code.

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