What Is Credit Life Insurance Used For? 
Credit life insurance is used to guarantee payment of a debt . It was very common at one point in time for a lender to sell credit life insurance to their customers . The way it worked was for the death benefit to start at the entire amount of the loan and decrease as the amount owed decreased . If the customer died , the finance company collected the amount due from the insurance company and the debt was paid off . While , on the surface , this seemed like a good idea , in practice , it was n't quite so good a deal . If you applied for term life insurance at the level amount of your loan , you could actually buy a lot more life insurance for the same price , and it never decreased . So , if you died , your beneficiary had the control over the death benefit and it was larger . This dirty little secret got out and , today , credit life is all but extinct . That does n't necessarily mean it 's a bad thing , it was just abused and used as a profit center for car dealers and banks . If you really want to protect a debt , talk to a good agent and find the right coverage for your needs . 