What coverage for a loan means
Insurance for a loan is usually life insurance, or a credit insurance product sold with the loan, that pays if you die during the term so the debt is cleared. The benefit can be built in two shapes. A decreasing, or reducing, benefit is designed to follow the balance as you repay. A level benefit stays the same for the whole term, which is the natural fit when the balance does not fall, as on an interest-only loan.
Prices come from the insurer or lender and depend on age, health, tobacco use, the term and the amount, so this page does not estimate them. It works out the coverage the loan implies from your numbers and uses the premium you type in.
Worked example: a $250,000 repayment loan
Take a $250,000 loan at 6.5% over 30 years, repaid with equal monthly payments. The payment is $1,580.17. Coverage that follows the balance starts at $250,000.00, falls to $223,876.79 after a quarter of the term, $181,397.85 halfway and $112,322.85 after three quarters.
With a quoted premium of $40 a month, your payment plus the premium is $1,620.17. The premium is 2.53% of the loan payment and you would pay $14,400.00 in premiums over the 30 years. Interest is worked out each month as the yearly note rate divided by 12.
Interest-only loans and level coverage
If you choose interest-only, the balance does not fall, so the coverage stays at the loan amount for the whole term and the payment is only the monthly interest. For a premium priced per $1,000 of coverage, the calculator multiplies your rate by the coverage at the start, because the premium is normally level even when the benefit falls.
What this estimate leaves out
The calculator does not value critical illness or disability coverage, premiums that change over time, state rules on credit insurance, tax or what a policy pays in a particular case. Your insurer's illustration and your loan documents are the figures that count, and a licensed adviser can say whether a policy suits you.
To see what credit insurance on a loan adds to the payment, use the credit insurance calculator.
To check whether a loan fits your budget, use the can I afford this loan calculator.
Use the right country page
This page stays in dollars and uses US terms such as coverage and credit life. The country choices above the inputs open separate local pages. Choosing United Kingdom opens the UK loan insurance policy calculator, which uses pounds and UK terms such as mortgage protection. The inputs reset and amounts are not converted.
Inputs for the loan insurance policy calculator
How the loan is repaid
Repayment means the balance falls and decreasing coverage fits. Interest-only means the balance stays and level coverage fits.
How your quote is priced
Match your insurance quote: a monthly premium, a monthly premium per $1,000 of coverage, or a single premium added to the loan.
Loan amount
What you owe now. This is the coverage at the start.
Interest rate
The loan's yearly note rate. Interest is worked out each month as the rate divided by 12.
Loan and coverage term
The years the loan runs. The policy is assumed to run the same time, to a whole number of months.
Premium from your quote
The figure on your quote, read the way you chose above. We do not estimate premiums.
CALCULATOR QUESTIONS
US loan insurance policy calculator questions
How much coverage does a loan need?
At the start, the loan amount. On a repayment loan, coverage that follows the balance falls over time: on the $250,000 example it is $181,397.85 halfway through the 30 years. On an interest-only loan it stays at the full amount.
Does the calculator work out my premium?
No. Premiums depend on age, health, tobacco use, term and amount, so you enter the premium from your own quote. This page shows what that premium means for your payments.
What does a single premium added to the loan cost?
More than the premium itself, because you pay interest on it. In the $15,000 example a $600 premium costs $744.35 in total, including $144.35 of interest.
What is the premium as a share of my payment?
The premium divided by your loan payment without it. In the $250,000 example a $40 premium is 2.53% of the $1,580.17 payment.
Is this a quote or advice?
Neither. It is a planning estimate from the figures you enter. Ask an insurer or lender for a quote and a licensed adviser if you are unsure what coverage you need.
What happens if I choose United Kingdom?
The country choice opens the separate UK loan insurance policy calculator, in pounds and with UK wording. Your inputs are reset rather than converted.