If you’ve just taken out a loan, or are in the process of borrowing money or signing up for a credit card, lender may offer credit insurance. The policies promise to pay loan if insured die, go on disability or lose job.
Credit insurance is an insurance policy that is directly connected to a loan, credit card, retail purchase that is financed, or other debt. This insurance policy pays all or a portion (i.e. monthly payment) of the outstanding debt if an event that is named in the policy occurs (i.e. death, disability or involuntary unemployment of the insured). The insurance company usually pays the money directly to the creditor or lender.
Types of Credit Insurance
- Credit Life Insurance :This policy will pay off a specific loan or a portion of the loan, if the insured dies during the term of coverage.
- Credit disability insurance (also called credit accident and health insurance):If the insured becomes disabled, as defined by the policy, this coverage makes the monthly minimum loan payments for a limited time period. The policy may require that insured be working a certain number of hours a week before the disability. Insured must be disabled for a certain number of days before the credit insurance will kick in, typically 14 to 30 days.
- Credit involuntary unemployment insurance :If you become unemployed because of a lay-off or strike, this coverage pays the minimum loan payment for a limited time period. The policy may require that you be working a certain number of hours a week before the job loss. You must be unemployed for a certain number of days, typically 30, before a benefit is paid.
- Credit property insurance :There are two types of credit property insurance. Credit personal property insurance covers repair or replacement of a financed item, such as a washer. If you have homeowners or renters insurance, this insurance is unnecessary..
- Credit leave of absence insurance :This policy makes a limited number of monthly payments on a specific loan or credit card if you take an unpaid family leave from work for specific reasons, including care for a newborn or care for a seriously ill family member.