A form of insurance policy that pays off one or more debts in the event of death, disability, or unemployment, credit insurance is called. Credit insurance is often offered as a credit card option, and the monthly cost charges a small percentage of the unpaid balance.
Credit insurance can provide financial protection in the case of certain disasters. Many Credit Insurance Products are too expensive compared to the benefits they offer. They also come with excessive fine print that can make collecting your policy difficult. Credit insurance policies should be carefully read by borrowers.
Different Types Of Credit Insurance
Credit insurance generally comes in five forms. The first four are for consumers, while the fifth is for businesses.
Credit life Insurance- This type covers your credit card debt in the event you die. This protects your loved ones and prevents them from having to pay the outstanding credit card balance out of your estate, or worse, their pockets.
Credit Disability Insurance – This credit insurance pays the minimum payment to your credit card issuer in case you are disabled. The insurance may require you to be disabled for some time before it pays. The benefit may not kick in immediately after a certain period. You can't both add an insurance policy and file a claim on the same day.
Credit Unemployment Insurance- This insurance covers your minimum payment if you lose your job due to no fault of yours. For example, if you quit your job, the insurance benefit does not kick in. You may need to be unemployed for some time to receive your minimum payment.
Credit Property Coverage – This protects personal property that you used to obtain a loan.
Trade Credit Insurance- This type of insurance protects credit-based businesses. It protects against clients who are unable to pay due to insolvency or other circumstances. This type of insurance is not necessary for most consumers.
Before Purchasing Credit Insurance, Here Are Some Important Questions
- Are there any assets or insurance that could cover your debts in the event you die, become disabled, or are unemployed?
- Is it better to purchase a life insurance policy than a disability insurance policy? Credit insurance can be more expensive than traditional insurance options.
- Will the premium you pay for a single policy be included in the loan? How much will your loan payment rise due to credit insurance costs?
- Is the credit insurance able to cover the entire term of the loan as well as the balance?
- What is the waiting period before the monthly benefit can be paid?
- What is not covered by the policy
- Can an insurance company or lender cancel insurance?
- Can policy terms and premiums be modified without consent?
What Is The Cost Of A Credit Insurance Policy?
The cost of a Credit insurance policy is dependent on many factors, such as the amount of the loan/debt amount, the type of credit, and the policy type. You can pay your premiums in one payment or monthly outstanding balance.
Monthly Outstanding Balance Method – This is the most popular option for credit cards, home equity loans, and other debts. This payment method can be used in two ways.
- Open-End Accounts – The premium is calculated based on monthly debt and is charged monthly. This amount will be noted on the statement sent by the lender.
- Closed-End Accounts – The amount of the debt are fixed and must be paid each month. The policy will be canceled if you fail to pay the amount.
Single Payment Method– This method calculates the premium amount at the time of policy initiation and the borrower is responsible for the full payment at policy purchase.