Should I Buy Credit Insurance?

Posted on | October 2, 2011 | No Comments

If you’ve never tried getting a personal loan or a mortgage, you may never have heard of credit insurance. Credit insurance is a type of insurance that pays out in the unfortunate event that you can no longer make payments. Banks and other lenders will often try to sell credit insurance to you when you are applying for a loan or mortgage. Most of the time, there is no requirement to purchase credit insurance. In the past, lenders would try all sorts of manipulative things in order to get people to purchase credit insurance, but those days are over – the Federal Trade Commission has made it illegal for lenders to use deception in order to get you to purchase credit insurance. For example, in the past, a lender may have tacked credit insurance onto a loan, charged you additional money and hoped you never bothered to read the small print and find out what the extra charges were for.

Image by I am marlon via Flickr

Credit insurance has four categories: credit life insurance, credit property insurance, credit disability insurance and involuntary unemployment insurance. Credit life insurance is designed to either fully or partially pay off your loan upon your death. Credit property insurance comes into play when the personal property used to secure a loan is destroyed through no fault of your own. Credit disability insurance is designed to take over the loan payments in the event you are injured and cannot bring in income. Involuntary unemployment coverage takes over payments if you happen to lose your job – unless you are fired.

Credit insurance is not for everyone. Depending on your needs and the cost of the credit insurance, it could be more worthwhile to purchase a different insurance product, such as life insurance. If a lender is advising you to purchase credit insurance, ask them how much credit coverage premiums will cost. Will you be required to pay the premiums out of pocket or will the money come out of the loan itself? If so, how much would the loan payments be with the credit insurance? How much would they be without the credit insurance? How long does it take for the credit insurance to become effective? Is it possible to cancel the credit insurance at some point? How would you be refunded if cancellation is possible? Will the credit insurance pay back the loan entirely or partially?

If you make the decision not to purchase credit insurance, make sure to explicitly inform your lender. The lender should let the matter drop at that point, but if they don’t, then find someone else to get the loan from. Always read through the loan agreement to make sure that they haven’t “forgotten” to remove the credit insurance component. If the lenders refuse to give you a loan unless you get the supposedly “optional” credit protection, then do not let them pressure you into anything; instead, go to the FTC, state commissioner of insurance or state attorney general and report your lender because what they are doing is against the law.

To learn more about insurance products take some time to visit Complete Insurance and get caught up on the latest in car insurance.

Insurers: credit where credit’s due (telegraph.co.uk)
Clueless About Credit Card Insurance? (businessinsider.com)
15 Kinds of Insurance You May Not Need (dailyfinance.com)

Category: Credit Information, Credit Insurance, Finance

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