Pay off Your Debt With the Assistance of Life Insurance Coverage

Pay off Your Debt With the Assistance of Life Insurance Coverage

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Pay off Your Debt With the Assistance of Life Insurance Coverage: At some point in time, we find ourselves struggling financially and there is no other way but to borrow money to resolve the issue. For example, it might be to pay hospitalization costs for any disease. You might be finding it difficult to commute from your home to your office. So you decide to purchase a car or an apartment near your workplace. But later on, adding the daily living expenses of your family($3,365 for a family of 4 in Alberta), the interest rate(9.41%), or any other variable. It might get difficult to pay off your debt. In such a case leaving your loved ones might have to deal with an outstanding mortgage, credit cards, student loans, or other debts. This will put an unfair financial strain on them. Credit life insurance can prove helpful in reducing this burden.

Estate planning will assist you in developing a detailed strategy for managing your finances both during and after your lifetime. One of the most important aspects of this strategy is “what will happen to any debts you might have after you pass away”.

What is Credit Life Insurance?

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Credit Life Insurance, also sometimes directly known as credit insurance in the market, is intended to help alleviate the strain. Though it may not be suitable for every estate plan. Credit life insurance pays off the debt of borrowers in case he passes away. As the debt is paid off over time, the face value of a credit life insurance policy decreases. The decrease is proportionate with the remaining loan amount until both hit zero.

Banks normally include credit life insurance at the time of a mortgage closing. However, it can also be offered when you take out a car loan or a line of credit. The pitch is that the insurance will pay off the debt and cover your heirs if you die. If you have a co-signer on your mortgage, credit life insurance will prevent them from having to make loan payments after you pass away. And if you are the sole breadwinner in your family and you fear the loan co-signer will be unable to make payments if you died. Then to you, this may be quite appealing.

However, any heirs who are not co-signers on your loans are normally not obliged to pay off your debts when you die, debts are rarely inherited. Only a few states accept community assets, and even then it applies only to your spouse. Your children can not be held responsible for your debts. When banks lend money, they accept the possibility that the borrower will die before repaying the loan. As a result, credit life insurance covers the lender rather than the heirs. In reality, the proceeds from a credit life insurance policy go to the lender rather than your heirs.

Are you forced to opt for Credit Life Insurance?

It is illegal to include credit life insurance in a loan or to base loan decisions on credit life insurance acceptance.  Nonetheless, credit life insurance is often built into a loan, increasing the monthly payments. So it’s best to inquire about it with your lender.

What to remember about Credit Life Insurance?

When a creditor dies, credit life insurance pays off the debts. It’s usually available from a bank at the time of a mortgage closing, when you take out a line of credit, or when you get a car loan. If your partner or someone else is a co-signer on the loan, this form of policy is particularly necessary to prevent them from having to repay the debt. In states where heirs aren’t shielded from a parent’s unpaid debts, it also covers the spouse or heirs.

Thank you for reading this article on Pay off Your Debt With the Assistance of Life Insurance Coverage. If you found this article helpful share it with your friends and family. It will help them clear their doubts and raise awareness on the topic. You can also read articles on Life Insurance, Health Insurance, Home Insurance, etc. For any queries, you can connect with us via mail at aip@akaninsurance.ca