ABA Family Legal Guide

Consumer Credit

Applying for Credit

Credit Insurance

Is credit insurance a good idea?

Whether you should buy any credit insurance is a personal decision. Surveys of consumers who have purchased credit insurance indicate that they have done so because they did not have much other life insurance and did not wish to leave their family with the obligation to pay off the debt. The cost per $100 of credit insurance is definitely higher than the cost per $100 of a decreasing term life insurance policy. However, if the credit life insurance covers a $5,000 auto loan, the comparison is not very meaningful, since most consumers cannot buy $5,000 decreasing term life policies. The minimum amount purchasable is usually $50,000 or $100,000, depending on the insurer. Thus, you should expect to pay more per $100 of coverage for credit life insurance than for a $50,000 decreasing term life insurance policy—just as you expect to pay more per ounce for a glass of milk in a restaurant than for a gallon of milk at the supermarket.

As for credit insurance for credit cards, remember that it makes only the minimum payment each month, even though you may have been paying a larger amount before the disability or unemployment that triggered the benefit.

If you think credit insurance makes sense, and especially if you are trying to protect your beneficiaries from having to pay off the mortgage, you should investigate purchasing decreasing term life insurance. Though you may have to purchase a minimum amount, you would protect your family better, and get more for your money.