Many borrowers may hear of “creditor protection insurance” when they take a mortgage or a large loan from the bank. Consider the following and see if term life insurance is a better option:
Once you are approved for term life insurance by an insurance company and sign the contract, you’re covered. This is because the insurance company considered many factors such as your age and overall health in a process called underwriting. Banks will usually underwrite “post-claim” meaning after death they will determine if you were insurable. If you were “uninsurable” your beneficiary will only receive an emotionally devastating surprise and the return of your premium payments.
With term insurance you choose your coverage amount and it will never decrease. A bank only covers the exact amount of your debt, which decreases as you pay it down, but of course even though your coverage decreases, they don’t decrease the price they are charging you for it!
You own the term insurance policy and it is not tied to a specific debt or obligation. If you find a better mortgage rate at a different bank, your term life insurance can cover that debt without any need to reapply for coverage. “Creditor protection insurance” is held by the bank and you cannot take it with you if you start a new mortgage at a different bank, for example.