In your financial career you may have heard the term “credit insurance” floating around lately, but what exactly is it? Credit insurance is a product that if the policy holder happens to die, pays off the loan balance of the loan the insurance covers, up to the maximum amount of the policy.
There are four different types of credit insurance. The first is credit life insurance. This is obviously the most common. Credit life insurance states that if you were to die, the amount of money that you paid into insurance would be applied to your account. In a way the lender becomes a beneficiary in your will, in that your insurance money is willed to them. The second option is involuntary unemployment credit insurance. This basically states that the insurance company will pay on the loan if you are laid off from your job. This only is good if you voluntarily quit your job, or if you were fired for conduct. The third option is credit property insurance. This is for when you buy some type of expensive piece of property (does not include real estate or a car) that you have to finance such as a television. This policy basically states that if you are to pass away the insurance company will pay either the smaller amount of the property, or the amount of the loan dependent on your policy. The final type of credit insurance is credit disability insurance. Disability insurance pays part, or in some cases all, of your monthly loan payments if you happen to become disabled and unable to work.
So how do you pay for Credit Insurance? First off you are not required to obtain credit insurance in most cases, so if they try to force you to buy it for you to be granted credit, well, they can’t. With property insurance they sometimes can require you to take out insurance on the item since the company still owns that piece of property until you pay it off. They will quite often just add the insurance to your bill, without asking you in these cases. Other than that, paying for credit insurance has become quite simple. You just add the cost of the insurance to the balance that’s due on your credit transaction. For credit cards, that basically means that your credit insurance will be the first thing that you buy with your card. For property, it is usually just added to the balance of the loan. Just remember that you are liable to pay interest on the insurance until you pay it off, so be sure to put that number into your payment calculations.
If for some reason you decide that you do not want your credit insurance, or feel it’s unnecessary, then just cancel your policy within ten days and you usually can receive a full refund. After the initial ten days, you can still receive a refund but it is usually a pro-rated amount dependent on how many days it has been since you signed the policy.
In a lot of cases credit insurance can be a good thing. It really depends on you expensive the line of credit or property is, and how at risk you are for death or disability. In many cases the cost of insurance outweighs its benefits, but it can also be a lifesaver if the unexpected happens.
