Whats the difference between gross coverage and net coverage?
The terms are references to the amount of credit life insurance on the loan. Gross is more than net. Gross equals the amount of the loan principal plus the loan interest. Net equals only the loan principal. For example, a $5,000 loan at 10% interest repayable over 60 months would have a total of payments of $6,375 (loan interest is $1,375). Gross coverage is an initial $6,375 of decreasing term life insurance. Net coverage is an initial $5,000 of decreasing term life insurance. The value of gross coverage is a benefit margin sufficient to payoff the loan balance even if the loan payments are a few months delinquent, a common occurrence since death is often preceded by lingering illness and medical expenses making timely loan repayment difficult. Of course if the loan repayments on schedule, then the excess benefit is paid to the borrowers estate. This excess benefit would equal the amount of unearned loan interest. The option to provide gross or net coverage only exists for credit life
