27:["$","$L28",null,{"category":"$29","relatedArticles":[{"id":"cG9zdDoxNDQzNzM=","databaseId":144373,"postId":144373,"author":{"node":{"id":"dXNlcjoxMDU=","databaseId":105,"userId":105,"avatar":{"url":"https://secure.gravatar.com/avatar/38226c28dde29adf75654140d27c4f08?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Sam Lipscomb is a writer for SmartAsset. His work spans a wide variety of personal finance topics with expertise including retirement and investment. He is particularly well versed in credit cards. Sam has been featured in The Economist and on The Points Guy. He is a Certified Educator in Personal Finance (CEPF®). Sam graduated from Kenyon College with a degree in Economics and enjoys being a go-to resource for family and friends when it comes to personal finance. Originally from Washington, DC, Sam loves all things aviation and is a Cleveland sports fan. He currently lives in New York.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Sam","fullName":"Sam Lipscomb, CEPF®","lastName":"Lipscomb, CEPF®","name":"Sam Lipscomb, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":121,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"slipscomb","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$2a","date":"2021-09-13T16:15:33","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxOTM3Nzg=","databaseId":193778,"altText":"variable universal life insurance popularity","date":"2023-04-02T02:01:34","fileSize":17967,"mimeType":"image/jpeg","modified":"2023-04-02T02:01:34","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2021/09/life-insurance-family-protection-to-assure-members-will-be-supported-vector-id1297366388-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-5-16","readable":"May 16, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/variable-universal-life-insurance-popularity","metaDesc":"In the first half of 2021, the number of policies sold increased 8%, compared with prior year results - the highest policy sales growth recorded since 1983.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"Variable Universal Life Insurance Booms From Section 7702 Change - SmartAsset","__typename":"PostTypeSEO"},"slug":"variable-universal-life-insurance-popularity","status":"publish","title":"How a Tax Law Tweak Supercharged Sales of One Type of Insurance","uri":"/life-insurance/variable-universal-life-insurance-popularity","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjoxMDU=","databaseId":105,"userId":105,"avatar":"$2b","description":"Sam Lipscomb is a writer for SmartAsset. His work spans a wide variety of personal finance topics with expertise including retirement and investment. He is particularly well versed in credit cards. Sam has been featured in The Economist and on The Points Guy. He is a Certified Educator in Personal Finance (CEPF®). Sam graduated from Kenyon College with a degree in Economics and enjoys being a go-to resource for family and friends when it comes to personal finance. Originally from Washington, DC, Sam loves all things aviation and is a Cleveland sports fan. He currently lives in New York.","additionalMeta":"$2c","email":null,"firstName":"Sam","fullName":"Sam Lipscomb, CEPF®","lastName":"Lipscomb, CEPF®","name":"Sam Lipscomb, CEPF®","postCount":"$2d","slug":"sam-lipscomb-cepf","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$30","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Life insurance policies, specifically whole life insurance and variable universal life insurance, continue to skyrocket in popularity. While this upward trajectory in the life insurance market has been underway for some time, there are a few factors contributing to this continued growth. It’s no secret that the COVID-19 pandemic has made people reckon with their mortality, which has undoubtedly contributed to an increase in new policies. But another key contributor to the sales boom is a tweak to Section 7702 of the federal tax code that has made variable life insurance products especially popular. Section 7702 defines what types of life insurance can be taxed as ordinary income. These factors, combined with low interest rates and strong markets continue to contribute to the life insurance boom.

","

Curious about how life insurance can fit into your long-term financial plan? A financial advisor can help. Try using SmartAsset’s free advisor matching tool to find an advisor in your area.

","

What Kinds of Policies Are Currently Booming?

","

The life insurance industry as a whole is seeing some of its fastest growth in decades. The first six months of 2021 saw an 8% increase in policy sales, the highest level of growth since 1983, according to LIMRA. Plus, total life insurance premium increased by 21% in the second quarter of this year. The industry hadn’t seen that type of growth since 1987.

","

But that’s not to say that specific policies aren’t standing out in popularity. Whole life products have done particularly well, with premiums increasing by 25% in the second quarter and total policies increasing by 5% for the entire year. Whole life insurance made up 36% of the market in the second quarter of this year.

","

Variable universal life (VUL) insurance is also surging in popularity, in part due to changes in the tax code. Section 7702 of the federal tax code deals with the type of life insurance setups that can be taxed as ordinary income. Recent changes have made it easier for VUL owners to avoid paying normal income taxes. Plus, booming markets and low interest rates have made VUL products even more attractive to life insurance buyers. VUL products made up 11% of the life insurance market in the second quarter of 2021.

","

What Is Variable Universal Life (VUL)?

","

Variable universal life (VUL) insurance is an insurance product that builds up a cash value by being invested in separate accounts. The performance of these accounts will typically vary, so it’s easy to see why VUL is popular in a booming equities market: These accounts pool money and perform essentially like mutual funds. If the separate accounts out-perform the market or out-perform the insurance company’s accounts, your life insurance payout can be greater than it otherwise would be. Of course, the inverse may also be true in downturns. VUL shares some similarities with variable annuities.

","

VUL products are also known for their flexibility when it comes to making premium payments. With whole life insurance the owner of the policy is typically required to make regular, fixed payments or risk lapsing the entire policy. With VUL, however, you can decide to skip certain payments altogether or even contribute maximums allowed by the IRS.

","

Should You Get Variable Universal Life (VUL) Insurance?

","

While the answer to this question will certainly depend upon your personal financial situation, it’s easy to see why more and more Americans are opting to take out VUL policies these days. With booming financial markets and the option to make variable premium payments, you could end up with a VUL policy that pays out more than a normal whole life insurance policy. However, make sure you read the fine print. Since VUL products are invested, you also might end up with less in the event of a market downturn, depending on when you die.

","

Another reason to think about getting a VUL policy is the fact that they typically don’t come with any set endowment age, which is when the value of the policy’s payout, or death benefit, equals the cash value of the insurance account. With whole life insurance, you’re typically limited to receiving what is stipulated in the death benefit. With VUL, you can almost always continue to accrue cash value in your insurance account, leading to larger payouts when a claim is eventually made.

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Bottom Line

","

It’s easy to see why the life insurance market has been heating up lately. With the COVID-19 pandemic still in full swing, people are continuing to think about their long-term financial plans and those of their loved ones. Plus, due to robust equity markets and changes to the 7702 section of the federal tax code, VUL policies are performing particularly well. It’s ultimately up to you to decide which life insurance plans make the most sense for you, but external factors may end up pushing you, like many others, in the direction of a new life insurance plan.

","

Tips for Financial Planning

","$32","

Photo credit: ©iStock.com/Nuthawut Somsuk, ©iStock.com/kate_sept2004, ©iStock.com/courtneyk

"],"experts":null,"link":"/life-insurance/variable-universal-life-insurance-popularity","published":{"datetime":"2021-9-13","readable":"September 13, 2021"},"shareInfo":{"title":"How a Tax Law Tweak Supercharged Sales of One Type of Insurance","origin":"/life-insurance/variable-universal-life-insurance-popularity"},"isNewsArticle":false},{"id":"cG9zdDo2MDkxMA==","databaseId":60910,"postId":60910,"author":{"node":{"id":"dXNlcjo1MA==","databaseId":50,"userId":50,"avatar":{"url":"https://secure.gravatar.com/avatar/10ca58872f36412ceff58616bb971c22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Amelia","fullName":"Amelia Josephson","lastName":"Josephson","name":"Amelia Josephson","postCount":{"pageInfo":{"offsetPagination":{"total":334,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"ajosephson","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$33","date":"2017-02-06T13:00:57","excerpt":"

\n","featuredImage":{"id":"cG9zdDo2MDk0OA==","databaseId":60948,"altText":"What to Know About Taxes on Life Insurance","date":"2017-01-25T17:24:20","fileSize":34676,"mimeType":"image/jpeg","modified":"2017-01-25T17:24:29","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2017/01/life_insurance_taxes_1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2019-8-21","readable":"August 21, 2019"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/what-to-know-about-taxes-on-life-insurance","metaDesc":"Curious about taxes on life insurance? You may have heard that life insurance policies can help your family shelter money from taxes but maybe you're...","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":4,"title":"What to Know About Taxes on Life Insurance - SmartAsset","__typename":"PostTypeSEO"},"slug":"what-to-know-about-taxes-on-life-insurance","status":"publish","title":"What to Know About Taxes on Life Insurance","uri":"/life-insurance/what-to-know-about-taxes-on-life-insurance","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo1MA==","databaseId":50,"userId":50,"avatar":"$34","description":"Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.","additionalMeta":"$35","email":null,"firstName":"Amelia","fullName":"Amelia Josephson","lastName":"Josephson","name":"Amelia Josephson","postCount":"$36","slug":"amelia-josephson","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$39","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Life insurance is an important part of financial planning. It becomes increasingly important as people get older and begin to think about ensuring the care of their family after they die. However, there are important tax implications to consider when deciding to use life insurance and when naming your beneficiaries. From taxes on payouts to estate tax issues, there is a lot of information to manage. It might make sense to find a financial advisor who can help you navigate the various life insurance products available. SmartAsset can help you find the right one who is right for you with our free financial advisor matching service.
\n

","

Taxes on Life Insurance Payouts

","

How does the IRS tax life insurance proceeds? The short answer is that lump-sum death benefits generally are not subject to income taxes. Most people who buy life insurance pay for it in a series of premiums. When the policyholder dies, the beneficiaries receive the death benefit in a lump sum. When life insurance is paid for and disbursed in this way, the benefit is not taxable unless it triggers the estate tax (more on that below).

","

If you opt for permanent life insurance (as opposed to term life insurance), your policy can accumulate cash value without triggering taxes. For policies that pay dividends, those dividends are generally not taxable, unless you receive more than you’ve paid in premiums.

","

As you can see, there are plenty of ways to get tax-free gains from a life insurance policy. However, there are certain life insurance decisions that can lead to taxation of some or all of the life insurance policy. Let’s take a look at some cases in which life insurance is taxable.

","

Taxes on Life Insurance Installment Payments

","

","

Some life insurance policyholders and beneficiaries choose to structure their policy so that the beneficiary receives the payment in annual or monthly installments rather than in a lump sum.

","

In that case, the bulk of the policy earns interest over time. The interest is considered taxable income. The same goes for any interest that the death benefit earns in the period between the death of the policyholder and the disbursement of funds to the beneficiary.

","

Life Insurance and Estate Taxes

","

Death benefits from a life insurance policy might be subject to the estate tax. This depends on the size of a policyholder’s life insurance policy and other assets. If you want to exclude your life insurance policy from your taxable estate when you die, one option is to name your spouse as your beneficiary. Life insurance policies left to a spouse are not counted as part of the estate of the deceased.

","

Another option is to transfer ownership of the policy to your beneficiary. The beneficiary can be your spouse or another person in your life. However, that ownership transfer must have been in effect at least three years before your death to avoid taxation.

","

Surrendering or Withdrawing from Your Life Insurance Policy

","

Say you’ve been paying monthly premiums on a universal life insurance policy. The premiums you’ve paid do not yet equal the cash value of the policy. However, you decide you want to withdraw money from the policy. Any money you withdraw that is greater than the amount you paid in premiums is considered taxable income. If you surrender the policy altogether, the difference between its value and what you’ve already paid in premiums is taxable income.

","

To get around the tax implications of a withdrawal, policyholders who want access to the money in their life insurance policy can take a loan from the policy rather than make a withdrawal.

","

Bottom Line

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With careful management of your life insurance policy you can shelter a sizable chunk of money from the IRS for your beneficiaries. The general rule with life insurance and taxes is that if you take more money out of the policy than you paid into the policy, you may trigger taxes. That goes for interest your policy earns and for money you take out yourself, in a surrender or withdrawal.

","

Tips for Financial Planning

","$3b","

Photo credit: ©iStock.com/dblight, ©iStock.com/Hailshadow, ©iStock.com/Weekend Images Inc.

"],"experts":null,"link":"/life-insurance/what-to-know-about-taxes-on-life-insurance","published":{"datetime":"2017-2-6","readable":"February 6, 2017"},"shareInfo":{"title":"What to Know About Taxes on Life Insurance","origin":"/life-insurance/what-to-know-about-taxes-on-life-insurance"},"isNewsArticle":false},{"id":"cG9zdDoyNjk5Mw==","databaseId":26993,"postId":26993,"author":{"node":{"id":"dXNlcjo1MA==","databaseId":50,"userId":50,"avatar":{"url":"https://secure.gravatar.com/avatar/10ca58872f36412ceff58616bb971c22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Amelia","fullName":"Amelia Josephson","lastName":"Josephson","name":"Amelia Josephson","postCount":{"pageInfo":{"offsetPagination":{"total":334,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"ajosephson","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$3c","date":"2015-02-11T10:00:56","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxODQzMzg=","databaseId":184338,"altText":"Should You Keep Your Life Insurance When You Change Jobs?","date":"2023-01-26T02:03:24","fileSize":105217,"mimeType":"image/jpeg","modified":"2023-01-26T02:03:24","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2015/02/15152543385_157bd1416e_z.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-9-7","readable":"September 7, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/should-you-keep-your-life-insurance-when-you-change-jobs","metaDesc":"Just because you're moving on from a job doesn't mean you have to move on from your life insurance policy. Here's what you need to know...","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":4,"title":"Do You Keep Your Life Insurance When Changing Jobs? - SmartAsset","__typename":"PostTypeSEO"},"slug":"should-you-keep-your-life-insurance-when-you-change-jobs","status":"publish","title":"Should You Keep Your Life Insurance When You Change Jobs?","uri":"/life-insurance/should-you-keep-your-life-insurance-when-you-change-jobs","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo1MA==","databaseId":50,"userId":50,"avatar":"$3d","description":"Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.","additionalMeta":"$3e","email":null,"firstName":"Amelia","fullName":"Amelia Josephson","lastName":"Josephson","name":"Amelia Josephson","postCount":"$3f","slug":"amelia-josephson","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$42","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Moving on from your job? You’ve probably heard that you can roll over your 401(k). But did you know you may be able to hold on to your employer-sponsored group life insurance plan after leaving? Not everyone gets group life insurance as part of their benefits package. Those who do may or may not be able to take their policies with them when they leave. Here’s what you need to know about these policies and how converting, or “porting” them works.

","

Consider working with a financial advisor as you make critical decisions about how best to arrange the life insurance that best meets your short- and long-term needs.

","

How Group Life Insurance Works

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Group life insurance doesn’t require a medical exam, a definite “pro” for folks in poor health, or who fear doctors. When you get group life insurance through your job, it’s part of your employee benefits package and doesn’t hinge on the state of your health. And if you sign up for group life insurance through a professional association or credit union, you probably won’t need to submit to a medical exam or answer questions about your medical history. The fact that you’re part of a group makes you a desirable customer in the eyes of the insurance company, regardless of the state of your health or lifestyle.

","

Group life insurance typically comes with relatively low premiums. Because the risk to the insurance company is pooled, the company can charge less for covering each member of the group. If your health is only so-so, the lack of a medical exam and the low premiums are the primary benefits of joining a group policy.

","

Insurance companies want to hang on to their customers. That’s why many offer what are called transferable plans. This feature is known portability or convertability.

","

What Happens to Group Life Insurance When You Leave Your Job?

","

","

Upon your departure, your employer must advise you of coverage termination. If the policy can be ported or converted, you must complete an application within a set period, typically a month or two, and file it with the insurance company. At that point you will be responsible for paying premiums directly to the insurer.

","

If your application for conversion is denied, it is important not to give up. ERISA, or the Employee Retirement Income Security Act of 1974, is a law established by the federal government that’s designed to, among other things, protect employees access to insurance. The government entity that enforces ERISA is the Employee Benefits Security Administration (EBSA), which is part of the Department of Labor (DOL).

","

In most denial cases, applicants are normally allowed one administrative appeal, so it’s important that the appeal is as carefully and thoroughly handled as possible. At this point an ERISA lawyer can be especially helpful.

","

Bottom Line

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Access to group life insurance is a great employee perk. However, when it’s time to leave your job, it may not necessarily be worth paying to convert the policy. It helps to calculate how much insurance you’ll actually need, if any. That way you can make a more informed decision before committing. It’s also important to carefully check what you’ll have to pay in premiums to maintain the policy you had with your now-former employer.

","

Tips on Insurance

","$44","

Photo credit: ©flickr, ©iStock.com/vgajic, ©iStock.com/Branimir76

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\n","featuredImage":{"id":"cG9zdDoxOTI0ODM=","databaseId":192483,"altText":"Credit Life Insurance","date":"2023-03-21T02:16:02","fileSize":106841,"mimeType":"image/jpeg","modified":"2023-03-21T02:16:02","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2015/03/credit-life-insurance1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-8-17","readable":"August 17, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/what-is-credit-life-insurance","metaDesc":"Credit life insurance pays your creditors upon your death. Unlike term or universal life insurance, credit life insurance does not pay your beneficiaries...","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"What is Credit Life Insurance? - SmartAsset","__typename":"PostTypeSEO"},"slug":"what-is-credit-life-insurance","status":"publish","title":"What Is Credit Life Insurance?","uri":"/life-insurance/what-is-credit-life-insurance","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo1MA==","databaseId":50,"userId":50,"avatar":"$46","description":"Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.","additionalMeta":"$47","email":null,"firstName":"Amelia","fullName":"Amelia Josephson","lastName":"Josephson","name":"Amelia Josephson","postCount":"$48","slug":"amelia-josephson","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$4b","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Credit life insurance pays a policyholder’s debts when the policyholder dies. Unlike term or universal life insurance, it doesn’t pay out to the policyholder’s chosen beneficiaries. Instead, the policyholder’s creditors receive the value of a credit life insurance policy. If you’re wondering how this works, you’ve come to the right place. And if you feel like you want more advice tailored to your specific needs, head over to SmartAsset’s financial advisor matching tool to get paired with an expert professional to guide you through your life insurance matters.

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Get life insurance quotes now.

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How Does Credit Life Insurance Work?

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Let’s say you sign on a personal loan, auto loan or a mortgage. Getting credit life insurance is as simple as adding a policy to the loan deal. The idea behind this insurance is to give you peace of mind knowing that when you die, your debts will die with you.

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Why Buy Credit Life Insurance?

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Sure, credit life insurance will ensure your debts definitely die with you. However, most debts die with you anyway. Your kids won’t be on the hook for your car loan after you’ve shuffled off this mortal coil. So why buy credit life insurance?

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There are a couple of reasons to consider this kind of coverage. For one, it provides protection for shared debts. If you hold debt in common with another person (a mortgage with your spouse, for example), then you do need to worry about settling the debt after you die. If you live in a common property state, your spouse could lose a chunk of your estate to your creditors. (As of this writing there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska allows couples to opt-in and make their property community property.) But a regular life insurance policy could help your spouse pay debts, too. You don’t necessarily need special credit life insurance.

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Credit life insurance also appeals to some for its characteristic as “guaranteed issue” life insurance. That means you’re eligible for coverage simply by virtue of being a borrower. You won’t need to undergo a medical exam to get this kind of policy. So it provides a good alternative if health problems have rendered you ineligible for regular life insurance.

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Who Benefits from Credit Life Insurance?

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It bears repeating that credit life insurance doesn’t directly benefit your spouse or heirs. Instead, the policies pay out to the your creditors. If you’re worried that you’re carrying an unmanageable debt burden, credit life insurance could set your mind at ease. That way you know your spouse won’t inherit that debt or face eviction from your family home.

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You could just make your spouse the beneficiary with a regular life insurance policy. This would place responsibility on him or her to pay off the mortgage (and/or other debts) over time. But if your life insurance policy won’t cover enough of your debt, credit life insurance could help.

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Is Credit Life Insurance Worth It?

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General wisdom states that credit life insurance isn’t an ideal form of life insurance. It isn’t really all that necessary since most debts can’t be inherited anyway. And if you do have debts you share with other people, you could always use a term or universal life insurance policy to provide your beneficiaries with enough funds to pay off shared debt. You’ll get more coverage for less money with term life insurance than you would with credit life insurance.

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One big downside to credit life insurance as opposed to regular life insurance is that the value of a credit life insurance policy decreases over time. Say you owe $200,000 on a mortgage you co-signed with your spouse. You decide to buy a $200,000 life insurance policy. If you buy a credit life insurance policy, the value of your policy will decrease from $200,000 as you pay down the mortgage. However, you keep paying the same premiums. That’s because you’re only insured for the amount you owe. But with term life insurance, you keep paying premiums and your policy value stays at $200,000, even if you completely pay off the mortgage. That’s better for your spouse and more value for your money.

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The Hard Sell

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Sometimes consumers can get talked into paying for credit insurance without realizing it. Occasionally, lenders roll the cost of the policy into a loan agreement without disclosing the charges or making it clear to the borrower that they are optional. This practice is illegal and the Federal Trade Commission has issued a consumer warning about it.

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It’s always a good idea to review a loan agreement before you sign it. If you see charges for credit life insurance, credit insurance, credit unemployment insurance or credit disability insurance, talk to the lender. These should be voluntary, so if you want them removed, speak up!

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Plus, a lender can’t deny you a home loan or a personal loan just because you don’t opt for credit insurance. (Private Mortgage Insurance, which lenders charge on home purchases with a down payment of less than 20%, is a different matter.) If a lender says that your loan won’t go through unless you agree to buy credit life insurance, you might want to find a different lender.

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If you decide to buy credit life insurance, be sure to ask whether the premiums are paid separately or financed into the loan. If they’re financed, you’ll pay interest on them. More interest means more of your hard-earned money goes to the lender, so you might want to fight for your right to pay the monthly premium separately.

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Bottom Line

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It’s a great idea to think about how your heirs will fare financially in the event of your death, and to protect anyone who co-signed a loan, credit card or mortgage with you. In most cases, though, credit life insurance isn’t the best way to do so. It can be a handy tool, but other life insurance policies can achieve the same goals and more.

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If you’re not sure which option is right for you, consider talking to an insurance or a financial advisor. SmartAsset’s financial advisor matching tool can help you find a person to work with to guide you through your life insurance matters. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

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