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Need Credit Life? Maybe not. A better option may be available.

Credit Life Insurance

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If you take any kind of large loan from most banks or credit unions, you will be offered credit life insurance. This is a type of decreasing term life insurance designed to match the principle balance of the loan at any given point and to pay off the loan in full in the event of the insured person's death.

It is expensive because it is usually priced per $1,000 of credit per month rater than on an APR rate. Usually, you do not choose the beneficiary. The beneficiary is the bank. You pay the premium, but the bank collects if you die before the bill is paid.

Most insurance professionals will tell you not to take insurance that only applies to a single debt. Instead, you could purchase your own term life or universal life policy. If you want something that will remain in force once the debt is paid, choose universal which can be adjusted once your debt is paid, keeping enough insurance in force to cover final expenses, estate taxes, and so forth. If you need a higher face value than you can afford with a universal or whole life, you can get a lower face amount universal and back it up with a term rider that will run any number of years. When the term rider expires, you will have conversion privileges, but if you don't need that much insurance, you can just let it go and still have the universal policy itself in force.

If you are sure you will not need life insurance protection in 15 or 20 years, and don't care about building cash value, you can choose term life. The policy will end at the end of the term, but you will have the full face value for the life of the term. Thus, if you die your beneficiary will have enough to pay off your debt as well as pay your final expenses with perhaps some left to live on as well.

Credit Disability Insurance
A type of insurance that is offered through the mail or by telemarketers if you have any credit cards is credit disability insurance, sometimes called "credit accident and health" insurance. This can be offered by banks and credit unions as well, but usually is not. Credit disability insurance pays the lender if you should become disabled to the point of being unable to hold a job. It may also pay the bills if you are out of work due to surgery or illness.

Credit disability insurance is usually not worth the cost of its premium. While the premium is calculated the same way credit life insurance is calculated, the actual benefit will be limited to no more than your minimum payment on a credit card. Thus, you can expect to see your balance increase each month even though the company is making your payment.

That isn't to say that accident or disability insurance should be ignored. It is an important piece of the insurance safety net, but should be purchased from a reputable agent or insurance company. Never purchase accident or disability insurance from a credit card company.