Definition
Credit Life Insurance
Credit life insurance is a policy that repays an outstanding loan if the borrower dies, disabling the debt from burdening the family.
Often sold alongside home, auto or personal loans, credit life cover has a sum assured that mirrors the reducing loan balance, so the payout shrinks as the loan is repaid. On the borrower's death (and sometimes on disability or critical illness in richer variants), the insurer clears the lender's outstanding amount.
In India this is commonly a group credit life scheme arranged by the lender with a single premium financed into the loan. Borrowers should compare its cost against simply buying a level term plan, which can be cheaper and portable across loans.
Related terms
- Group Term LifeGroup term life is a single life insurance policy providing term cover to a group of people, commonly employees, with the employer as master policyholder.
- Collateral AssignmentCollateral assignment is a conditional transfer of a life policy to a lender as security for a loan, with rights reverting once the loan is repaid.
- Term InsuranceTerm insurance is pure life cover that pays your family a large sum if you die during the policy term, in exchange for a low premium.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.