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Credit Insurance

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, be wary.

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.


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