Types of Life Insurance to Avoid

The main reason behind buying a life insurance policy is to protect your family or dependents from financial hardships in case something happened to you unexpectedly. But, there are a lot of life insurance policies that are being sold today that duplicate the protection you would get from a normal term life insurance policy, so don't be so quick to sign on the dotted line.

Here are some types of insurance you should avoid:

Credit Life Insurance - A credit life insurance policy, or "credit life," as it is also referred to, is used to pay off a debt for a car, electronics, appliances or any similar consumer items if you die or are disabled and cannot make the repayments. It is in effect a type of decreasing term life insurance that will help pay your credit card bill if something were to happen to you. But unlike a term life policy, it is insurance on a debtor, in favor of a lender.

You may be offered a credit life policy when you are financing a large item and the premiums are usually added into the loan contract. This type of policy is ALWAYS optional and is generally quite expensive. Credit life isn't normally sold by itself. Salespeople typically sneak it in when you finance a purchase because it generates hefty commissions for them. You should also know that it is illegal for a lender to force you to buy such a policy when making any big
ticket purchases. Credit life coverage is also severely limited as it never covers pre-existing medical conditions. If you turn 70 during the policy period, it also often becomes null and void. Finally, your family isn't treated as the beneficiary, rather the lender is.

The basic premise of credit life is faulty as what most people don't realize is that when you die, your dependents are not obligated to pay off your debts unless their names are on the accounts in question along with yours. If you feel that you are being forced to buy credit life insurance against your wishes, scan all agreements carefully in search of signs of credit life and ask that it be removed. If you find out that you are already paying for credit life, you can cancel it at any time and receive a pro-rated refund. You should also check with your state insurance commissioner if a salesperson is allowed to insist you buy credit life to get a loan and complain to the authorities if it is not allowed.

Therefore, if you already own a sufficient amount of life insurance to cover your financial needs, including repayment of your debts, the purchase of credit life insurance should be avoided.