Do Mortgage Borrowers Need Credit Life Insurance

Performance Property Real Estate Question

Q: I bought a house last month and I received an offer for credit life insurance. Do you think it’s a good idea to buy credit life insurance? Lance, Woodbridge, NJ

A: Credit life insurance is a specialized type of insurance that provides financial protection for mortgage borrowers and their families in the event of the borrower’s death. Credit life insurance is often tied to the outstanding balance of the mortgage loan. Credit life insurance will cover the remaining mortgage balance if the homeowner passes away before the loan is fully paid off.

Lenders may include the cost of credit life insurance in a mortgage borrower’s loan principal which means that interest will accrue on the combined amount which means that traditional life insurance may be a financially smarter choice to protect a borrower’s family financially than credit life insurance because regular life insurance provides a broader range of coverage beyond mortgage debt. Regular life insurance offers financial protection to beneficiaries for various needs including income replacement and education. Also, regular life insurance remains in force regardless of changes in a borrower’s mortgage loan or the mortgage loan’s payment status and regular life insurance can be maintained even after a mortgage is refinanced or paid off.

Every household’s situation is unique so the choice between credit life insurance and regular life insurance should align with an individual or family’s specific situation, financial priorities and goals and the choice should consider all the people who are dependent on the mortgage borrower financially for the foreseeable future. Thanks for your question, Lance.

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