Credit life insurance is a type of insurance policy in which the beneficiary is a lender that the policyholder owes money to. This means that if you get a credit life insurance policy on your loan and you die with an outstanding balance, the death benefit can only be used to pay off the balance of the loan.
The maximum payout can’t be larger than the loan, and some states set maximums that may be smaller than your loan. As you pay down the loan, the death benefit on your credit life insurance also decreases.
Credit life insurance can be used for any large personal loan, including mortgages, auto loans or education loans. It’s against federal law for lenders to require credit life insurance, so you are free to decline a policy even if your lender requests that you take one.
You can cancel a credit life insurance policy at any time, and you could receive a partial refund of premiums, but lenders will have different cancellation policies so be sure to read the fine print.
If you want to make sure that your loved ones won’t have to worry about paying off a home, car or any other important asset you might get credit life insurance for, term life insurance or a permanent life insurance policy like whole life insurance or universal life insurance may be a better and more flexible option.
Not only can your beneficiary use the funds for whatever costs are most important, the death benefit will not diminish over the life of the policy as long as you pay your premiums —and, depending on the policy, it may even grow.
Life insurance is an important component of your overall financial plan, providing financial protection for your loved ones. A financial advisor can help you choose a policy that best meets your needs.
Your advisor will help you define what’s important for you and your family—uncovering opportunities and blind spots. Then they’ll work with you to personalize a comprehensive plan to grow your wealth while protecting it from risks.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company and its subsidiaries. Life and disability insurance, annuities, and life insurance with longterm care benefits are issued by The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM). Longterm care insurance is issued by Northwestern Long Term Care Insurance Company, Milwaukee, WI, (NLTC) a subsidiary of NM. Investment brokerage services are offered through Northwestern Mutual Investment Services, LLC (NMIS) a subsidiary of NM, brokerdealer, registered investment advisor, and member FINRA and SIPC. Investment advisory and trust services are offered through Northwestern Mutual Wealth Management Company (NMWMC), Milwaukee, WI, a subsidiary of NM and a federal savings bank. Products and services referenced are offered and sold only by appropriately appointed and licensed entities and financial advisors and professionals. Not all products and services are available in all states. Not all Northwestern Mutual representatives are advisors. Only those representatives with Advisor in their title or who otherwise disclose their status as an advisor of NMWMC are credentialed as NMWMC representatives to provide investment advisory services.
*Based on Northwestern Mutual internal data, not applicable exclusively to disability insurance products.
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