WHAT IS CREDIT INSURANCE?
Credit insurance is just that. It pays your
credit debts if for some reason you can’t.
Say you bought a car or got a credit card then
something happened and you were disabled or died,
the insurance would pay your outstanding balance.
Credit insurance tends to be very specific, regarding
what it will cover, how much and the circumstances
of coverage need.
There are 2 very good reasons that creditors
sell credit insurance to customers; first, they
get paid, if you can’t pay your balance
for the stated reasons, they still get the money
they lent you; and secondly, they get paid, the
insurance company shares the price you pay to
have the insurance with your creditors so they
extra money from selling the policy.
Credit insurance comes in several different forms:
- Credit Life Insurance –this covers
the outstanding balance of the specific debt
in the event of your death.
- Credit Accident, Health & Disability
– this makes monthly credit payments for
you during periods when you are unable to work
due to accident or illness. .Again this is very
specific, you need to read the fine print regarding
length of coverage and circumstances under which
it will work.
- Credit Unemployment Insurance – this
makes monthly credit payments for you during
periods when you are unemployed. Ask specific
questions about unemployment insurance since
policies may offer different benefits.
Credit insurance is generally voluntary; however
some companies prefer that you get it, if it is
mandatory it must be included in the disclosure
statement. Buying credit insurance is a personal
decision. Carefully consider the need and the
costs before buying.
Is Credit Insurance Necessary ?
Insurance can be a nice thing to have. But it
is important to carefully consider the cost benefit
ratio. In most cases it is more cost effective
to purchase a general insurance policy that covers
disability or a whole life policy covering death
than to get credit insurance for every debt. The
difference has to do with the costs of individual
policies and the narrow focus of credit insurance.
Personal disability insurance gives you the freedom
to decide which bills you want to pay based on
your personal priorities.
Older consumers may sometimes feel that credit
insurance is desirable because underwriting requirements
make it difficult for them to obtain these other
types of insurance. If that is the case, credit
insurance is worth exploring, but do it wisely:
Ask what limitations and exclusions there are
on paying the benefits. Tell them you want the
answer in writing. If they won’t do that,
Ask for a clear explanation of the benefits.
Carefully check the premium price -- which can
run into thousands of dollars. Ask the creditor
to give you a comparison of your monthly payment
amount and the total debt, both with and without
the premium for the policy.