You probably already have auto insurance and homeowner’s insurance policies. And you’re also likely covered by health insurance and life insurance. You may even have pet insurance for your furry friends. So, it begs the question: Do you need credit life insurance, too?

Let’s clear up some of the confusion and misinformation that exists about this little-known coverage policy. Read on for all you need to know about credit life insurance.

  • Credit life insurance is not life insurance

Their names are nearly identical, and both kinds of insurance policies make payouts in the event of a death. But that’s essentially where the similarities end.

Life insurance covers the policyholders and makes payouts to their survivors upon their death.

Credit life insurance covers a large loan and benefits its lender by paying off the remainder of the loan if the borrower dies or is permanently disabled before the loan is paid in full.

Here’s how it works: A borrower takes out a mortgage on a new home and opens a credit life insurance policy on that loan. The borrower pays a monthly premium toward the policy, which is often rolled into their monthly loan payments. If the borrower becomes permanently disabled or passes away before the mortgage is paid off, the credit life insurance policy will pay the remainder of the loan in full. The title of the property will then be transferred to the borrower’s estate, and eventually to their beneficiaries and heirs. This way, the borrower’s family does not need to worry about covering the mortgage payments after the policyholder has passed on.

Credit life insurance is only offered by lenders on large loans, like home loans and auto loans.

  • Credit life insurance costs more than traditional life insurance

There’s a greater risk associated with credit life insurance when compared to traditional life insurance, so there is a higher cost for credit life policy premiums. The cost of the insurance will decrease as the debt is paid down by the borrower, but the premium will remain constant, often resulting in a loss for the policyholder.

The risk at play with credit life insurance is on the policyholder. Anyone who borrows a large loan can be eligible for a credit life insurance policy. Whereas life insurance takes the policy holder’s age, lifestyle and general health condition into account, credit life insurance does not require the insured to undergo a medical examination or to share their medical history with the insurance company.

  • The policy might not cover the entire loan

Before taking out a credit life insurance policy, check your state laws. Several states have set their own limits on credit life insurance payouts. Depending on individual circumstance, this can mean the loan won’t be fully covered by the policy. For example, in New York, the credit life insurance payout has set a maximum of $220,000 for mortgages and $55,000 for other loans. So, if your home or auto is connected to a loan exceeding those respective values, there will be a portion of it that is not covered.

  • Some lenders require credit life insurance

Sometimes, the choice of purchasing a credit life insurance policy is taken out of the borrower’s hands. In certain cases, a lender will require the borrower to open a credit life policy. This usually occurs with mortgage loans in which the borrower is putting down less than 20 percent of the loan value on the home. The upside here is that a few years down the line, when the borrower owns more equity in the home, they can ask the lender if they can now cancel the policy.

  • Two reasons credit life insurance might be for you

When seeking coverage for your loved ones after your passing, traditional life insurance is generally the recommended choice. Premiums tend to be affordable and coverage is usually sufficient for your needs. Conversely, with credit life insurance, premiums are steep and the primary beneficiary is the lender. You’ll also be paying the same steep premium for coverage that steadily declines over the life of the policy.

However, there are two primary reasons someone might take out a credit life insurance policy in place of a traditional policy.

    • Credit life insurance circumvents exclusion issues. Coverage exclusions on standard life insurance policies can be extensive. With credit life insurance, though, the insurance is covering the loan and not the individual. Consequently, exclusion issues rarely come into play.
    • Anyone can be insured. As mentioned, credit life insurance does not consider the general health or lifestyle of the policy holder. If you’re unable to get conventional coverage for any reason, a credit life insurance policy might be the perfect way for you to make sure your loans are paid off and your family is not in financial trouble if anything happens to you.

Credit life insurance is not for everyone. But, under certain circumstances, it can be a great way to ensure that your loved ones are financially secure after your passing.

Checking Accounts

Premium Perks

Freedom Checking

CashBack Checking

Direct Deposit


Savings Accounts

Savings Accounts

Super Saver

Money Market





Debit Card

Low Rate Credit Card

Rewards Credit Card

CU Rewards

Card Controls


Mobile Deposit

Online Banking

Pay Someone


Compare Rates

Vehicle Loans

Auto Loans

Refinance Your Car

Motorcycle & Jet Ski Loans

Boat & RV Loans

Mortgage & Home Loans


Refinance Your House

Home Equity Loans

Construction Loans


Personal Loans


StretchPay Loans

Student Loans

Credit Cards


Apply for a Loan

Pay a Loan

Online Bill Pay

Chat With Us

Financial Planning



Estate Planning

401(k) Rollover

Retirement Planning

Day Air Insurance

Auto Insurance

Home Insurance

Identity Theft Protection

Life Insurance

More Products & Services


Financial Counseling

Credit Reports

Reorder Checks


Online Banking

Online Banking

Online Bill Pay

Login to Online Banking

Mobile Banking

Mobile Banking

Mobile Deposit

Pay Someone

Text Banking


Apply for a Loan

Pay a Loan


Mobile Pay

Chat With Us


Business Checking

Business Savings

Business Certificates


Business Debit Card

Business Credit Card


Commercial Loans

Term Loans

PPP Loans

Line of Credit


Business Bill Pay


Online Business Banking

Login to Business Banking

Login to PIB MLO

Business Banking App

Join Day Air

Why Choose Day Air

Membership Eligibility

Annual Member Savings

Compare Rates

Join Day Air


Community Involvement

Financial Education

Dayton VA Medical Center

Dayton Dragons

Contests & Sweepstakes


Press & News

Newsletters & Reports



Helpful Resources