Credit life insurance can be expensive

Many people have paid for credit life insurance without understanding what it is or how expensive it can be. If you borrow money for any purpose, your loan payment may include a premium for credit life insurance.

Moneylenders such as banks, retailers, auto dealers, and finance companies sell credit life insurance to pay off your loan balance in the event of your death. Some lenders also sell credit disability insurance to cover your loan payments in the event you become disabled.

State laws vary, but some permit very high premiums on this type of insurance. A borrower’s health is often not a factor in being eligible for credit insurance, and therefore, the underwriters need to charge everyone higher premiums to cover the potential risks. The insurance premium is often added into the loan. This may make it harder for you to determine your actual cost.

Moneylenders may require that you have insurance to pay off the loan in the event of your death or disability. In most cases, however, you should have the right to buy a policy from another insurance agent or to assign the benefits from an existing policy. Your age, health, and size of the loan are all factors to consider in determining whether to use an outside insurance agent or to purchase the lender’s credit insurance.

Some lenders don’t require credit insurance if the loan is properly collateralized. When completing a loan application, ask what loan insurance, if any, is required. This will allow you time to review your best insurance alternatives before you actually sign for the loan.

If you would like assistance in analyzing a loan, or with other financial matters, please contact us. We are here to help you.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today's small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it. Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission. Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations. She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.
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