Rebalancing Beneficiaries Loan Insurance (RBLI)
Life Insurance to secure Equalization Payments or Loan Payments is a financial strategy that ensures a borrower’s debt obligations are covered in the event of their death, providing peace of mind for the borrower, their loved ones and the party owed money. This type of life insurance, often referred to as “credit life insurance,” is designed to pay off the remaining balance on a loan—typically a large personal loan—if the borrower dies before the loan is fully repaid. By securing loan payments in this way, the borrower’s family or beneficiaries are protected from inheriting a potentially overwhelming financial burden.
There are two common approaches to using life insurance to secure loan payments: obtaining a term life insurance policy or choosing a decreasing term policy specifically tailored to loan balances. A term life insurance policy offers coverage for a set period, usually 10 or 20 years or possibly more, during which the policy pays a death benefit if the insured person dies. The death benefit can be used to pay the lender or by beneficiaries to pay off outstanding loans. This type of policy is versatile because the beneficiary decides how to use the payout, which could include covering living expenses, medical bills, or any other needs in addition to loan repayment.
Alternatively, a Rebalancing Beneficiaries term life insurance policy aligns more directly with the structure of a mortgage loan. As the name suggests, the coverage amount owed to the Lender decreases over time, mirroring the gradual reduction of a mortgage balance as payments are made. In many cases, the lender may be listed as the beneficiary, ensuring that the loan is repaid directly. This arrangement can provide an added sense of security, as the borrower knows that their dependents will not face the risk of foreclosure or other financial challenges related to unpaid debts.
Life insurance for Family Law Equalization payments or for loan security is particularly valuable for anyone whose death would have a significant financial impact on others. In households where mortgage payments or other debt obligations depend heavily on one income, this type of protection can prevent devastating financial strain on surviving family members. In addition, such insurance can help avoid the need for the surviving family to liquidate assets or make drastic lifestyle changes to cover loan payments.
The cost of life insurance for loan security depends on factors like the borrower’s age, health, and loan amount, but is typically a low-cost method to secure loans. One advantage of using a traditional term life insurance policy is that if the borrower outlives the policy term, they are free to renew, adjust, or let the policy lapse without further obligations. As the loan is paid down the Rebalancing Beneficiaries Schedule adjusts monthly from the amount owed to the lender to other beneficiaries such as children or a new spouse. This is a Win/Win/Win for the lender, the borrower and the borrower’s beneficiaries.
In summary, life insurance to secure loan payments is a vital financial tool that ensures loved ones are not left struggling with loan payments after the borrower’s death. By covering outstanding debts, this insurance enables new spouses and children to remain in their homes, protect their financial stability, and avoid the added stress of unforeseen expenses during an emotionally challenging time.
