What Is Credit Insurance?

Credit insurance is a sort of insurance policy obtained by a borrower that pays off one or more current debts in the event of death, incapacity, or, in rare situations, unemployment.

Credit insurance is most commonly advertised as a credit card feature, with the monthly cost charged as a tiny percentage of the card’s outstanding amount.

How Does Credit Insurance Work?

In the event of certain disasters, credit insurance might be a financial lifesaver. However, many credit insurance plans are costly in comparison to their advantages, and they are rife with small print that can make it difficult to collect.

Key Takeaways

• Credit card clients can obtain three types of credit insurance: disability, life, and unemployment.

Credit insurance is an extra feature of a credit card that you do not have to acquire.

• Before getting credit insurance, assess if the existing protection you have in place is adequate.

• Credit insurance can serve as a safety net for credit card holders during difficult economic times.

If you believe that credit insurance might provide you with peace of mind, be careful to read the small print and compare your estimate to a conventional term life insurance policy.

Three Types Of Credit Insurance

There are three forms of credit insurance, each of which pays its benefits differently:

Credit Life Insurance

If you die, this sort of life insurance will pay off any outstanding loans and bills.

Credit Disability Insurance

If you become handicapped, this sort of credit insurance, also known as accident and health insurance, provides a monthly benefit directly to a lender equivalent to the loan’s minimum monthly payment.

Credit insurance may be a pricey feature for certain credit card customers in proportion to the benefits it provides.

Before receiving benefits, you must be handicapped for a specified period. In some cases, the compensation is retroactive to the first day of incapacity. In some circumstances, a benefit may not commence until a waiting time has been met. The most common waiting periods for credit disability insurance are 14 and 30 days.

Credit Unemployment Insurance

If you become involuntarily jobless, this insurance provides a monthly reward straight to the lender equivalent to the loan’s minimum monthly payment.

You must be unemployed for a minimum amount of days before receiving benefits. In some situations, the payment is retroactive to the first day of unemployment. In other circumstances, the benefit is not available until the waiting time is completed.

8 Things To Think About Before Buying Credit Insurance

• Do you have any additional insurance or assets that might meet debt obligations in the case of my death, incapacity, or unemployment?

• Is it preferable to acquire a life insurance policy or a disability insurance policy? Credit insurance may be more expensive than other, more typical insurance solutions.

• If you select single-premium coverage, would the premium be funded as part of the loan? If yes, how much would the loan payment increase as a result of the credit insurance cost?

• Will the credit insurance cover the whole period of the loan as well as the complete balance?

• How long is the waiting time for the monthly benefit to be paid?

• What isn’t covered by the policy?

• Can the insurance company or lender terminate the policy?

• Can policy terms or premiums be amended without consent?