Credit line insurance, also known as line of credit insurance, protects individuals with credit products like a home-equity line of credit account (HELOC).
This insurance protects you by paying off the remaining sum on the credit line in case of sickness or death. Consider a situation where someone with a line of credit falls critically ill and is unable to work. Here’s where the credit line insurance steps in, ensuring that the outstanding credit balance is taken care of, relieving the financial burden during challenging times. Similarly, credit line insurance becomes a safeguard if an individual passes away before paying off their existing debt. It covers the remaining balance, providing financial relief to the person’s estate. It ensures that financial responsibilities do not add stress during challenging times.
- Credit line insurance is intended to pay off specified outstanding debts if the borrower dies or falls critically ill before settling the loan amount.
- The credit life policy’s term aligns with the loan’s lifespan.
- Credit line insurance has lenient underwriting requirements. Credit line policies often have less rigid criteria than other insurance types, making them accessible and attainable for a broader range of individuals.
- Major banks provide various credit insurance options, including coverage for lines of credit and multiple loans. It’s crucial to note that each bank’s insurance plans differ in coverage and terminology.
Qualification Criteria for Credit or Loan Insurance
To qualify for credit or loan insurance, you must:
- Be at least 18 years old, meeting the minimum age requirement.
- Fall below the maximum age limit, often ranging between 65 and 70 years old.
- You must usually respond to a brief health questionnaire containing ‘yes’ or ‘no’ questions. Depending on your answers, insurance companies may grant immediate approval or request a medical examination before confirming your eligibility. Providing accurate responses to the health questionnaire is crucial, as your insurance will not be valid otherwise. Take the documents home to complete them, and seek guidance from a professional if necessary.
Keep in mind that you may lose your coverage if:
- You exceed your credit limit.
- You have overdue payments.
- Payments have been recently dishonored on your account.
Credit insurance premium
You will pay a one-time or recurring fee if you want to get credit or loan insurance. If you choose a one-time premium, it is typically paid when the lender approves your loan. Recurring premiums, on the other hand, are determined by insurance companies considering various factors:
- The initial amount of your loan.
- The duration you plan to take to repay the loan.
- The average daily balance of the previous month is specifically applicable if you have credit card balance insurance.
- Your age, sex, and overall health.
Should I buy insurance for a line of credit?
If you already have life insurance, critical illness coverage, and short or long-term disability insurance, you may feel that line of credit insurance is unnecessary. Employers often provide these coverages during your employment but may not extend beyond that period. Life insurance ensures that your beneficiary receives the death benefit, which can be used for various purposes such as paying off the line of credit, reducing mortgage balances, settling high-interest debts, or securing a well-funded education program for your children. Critical illness insurance typically offers a one-time tax-free lump sum payment to help normalize life after a significant health event. It does not have a designated purpose for repaying a line of credit. Long-term or short-term disability insurance provides a steady income stream in the event of an illness that prevents you from working. While the line of credit insurance may be a cost-effective solution when you have an active line of credit, having other existing coverages may safeguard you from financial hardship. It’s essential to carefully understand the terms of your contracts to make informed decisions about your insurance needs.
The Bottom Line
Regarding credit products, a line of credit insurance stands out as an affordable option. Yet, it’s essential to understand that this is a specialized product with a specific focus. Its coverage is limited to certain situations that may hinder your ability to settle the balance on your lines of credit. It is highly recommended that you speak with an insurance expert to navigate the complexity of insurance choices and determine whether credit insurance suits your situation. Make informed decisions to protect your financial future and provide peace of mind for those you care about.