 
Credit Insurance - What is it?
Many types of credit that people apply for will include the option to purchase credit insurance. Examples include credit cards, mortgages, personal loans, and lines of credit.
Credit insurance is exactly what it sounds like - it is insurance on the money borrowed. Sometimes, credit insurance is already included in a loan or mortgage agreement; however, if this is the case, by law you must be informed of it's inclusion. Often, credit insurance is optional.
If you decide you don't want credit insurance, tell the lender immediately. Always read the fine print before signing any loan papers, and ask any questions about any detail you don't understand, regardless of how small the detail is. Most importantly, if a lender informs you that you cannot get the loan or credit unless you purchase credit insurance, report the person and the institution to your local State Attorney General's office or contact the FTC, as this practice is against the law.
If you don't feel that you have the tools to make an informed decision about whether credit insurance is right for you, talk to a family member, banker, credit advisor or accountant and get the answers you need before making this important decision.
There is no one kind of credit insurance. The protection is designed to protect the money borrowed in the event that you are unable to repay it. The insurance may cover or not cover many things, including loss of employment, illness, disability, death, and so on. Having said that, there are 4 primary types of credit insurance. They include:
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Credit Life Insurance |
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This type of insurance means that in the event of your death, some or all of the loan will be forgiven. |
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Involuntary loss of income/Involuntary unemployment insurance |
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This insurance covers the loan in the event that the individual looses their employment through no fault of their own, such as getting laid off from a job. |
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Credit Disability Insurance/Accident and Health Insurance |
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This type of insurance covers the loan in the event that you experience an injury or illness that renders you unable to work. |
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Credit Property Insurance |
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This type of insurance protects personal property that was initially used to secure the loan. The protection covers personal property if it is destroyed due to natural disasters, theft, or accident. |
There are important considerations when deciding whether or not to purchase credit insurance. Most important are your needs, and the cost of the credit insurance. For example, are you better off to purchase separate life insurance at a lower rate than credit life insurance? These are important questions. Others include:
Is there a waiting period prior to which the insurance goes into effect?
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Will the insurance cover the full loan or only a portion of it? |
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How much is the premium? |
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Is the premium being financed as part of the loan? In effect, are you paying interest on the insurance? |
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Are different payment options available, such as monthly or quarterly? |
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Does the insurance cover you throughout the entire duration of the loan? |
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Can you cancel the credit insurance? |
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