When a borrower goes to a bank or other lending institution for a consumer loan, whether an unsecured personal loan, a car loan, or a mortgage, the lender always asks the borrower to initial a section which provides loan insurance in case of death or disability-at a fee, of course. If you become disabled or die and therefore cannot pay the loan payments, the insurance will pay them for you in the case of disability, and pay off the loan in case of death. Many borrowers agree to the insurance without a second thought, some with the idea that it's required in order to get the loan.

It's not required-it's against federal law to require it, actually-and in most cases it's not necessary. It's basically a way for the bank or loan company to get yet another fee out of you and protect itself in the process. If the company rolls the fee into the balance of the loan, which is the normal method, you will also end up paying interest on that fee for the life of the loan! In the case of a twenty- or thirty-year mortgage, that's a hellish amount of money!

Some employers offer long-term disability insurance that will provide a certain percentage of your standard income if you become ill; if your employer offers it for free, sign up for it. If you can afford to buy long-term disability insurance, either through your employer or on your own, you might want to consider doing that. But probably the best protection you can provide yourself is to set aside savings that will see you through a bout of unemployment, whether due to illness or job loss.

So what if you die? First, you'll be dead, so you won't care if the bank gets paid or not. Second, if you have any estate at all, it will be up to your heirs to pay your outstanding bills if possible out of the proceeds of the estate. If your debt includes a car loan and the estate won't cover it, your heirs have the option of turning the car in to the loan company. They absolutely will not be obligated to pay your bills out of their own money; if the estate can't pay the bills, the creditors are up the creek, period. If you have a family, including a spouse and dependent children or aging parents, you should have a term insurance policy in place that will cover any outstanding debt plus money for living expenses for a period of time to be determined by you. Term insurance is a much better deal than loan insurance.

So the next time a loan originator slides that document across the desk at you and points to the loan insurance section with a big smile, give her a big smile right back, check and initial the "no" line, slide the loan papers right back at her, and congratulate yourself for being a savvy consumer.