Guide To The Different Types Of Credit Insurance

Whether for buying a dream home or for trying to purchase a new car, loans are a fact of life for most Americas. Getting a loan can help you reach your short and long term goals. But what happens if you become disabled, lose your job, or die before that loan is paid off? Credit insurance seeks to meet the needs of consumers stuck in those kinds of situations. The article below gives a brief outline of what credit insurance is and how it works.

What Exactly is Credit Insurance?

Credit insurance is a type of life insurance that’s purchased along with a loan. The purpose is to aid the insured in paying off debt in the event of death or serious misfortune. If you have a credit insurance policy and lose your job, become disabled, or die, the policy will make payments on your debt. The payments continue until either the debt is paid off entirely or the policy ends.

Credit insurance is available for a variety of types of loans. This can include vehicle loans, loans to pay for education, mortgage and home equity loans, and more. There are actually several types of credit insurance. Let’s take a look at four primary types:

  • Guide To The Different Types Of Credit InsuranceCredit Life Insurance:
    Credit life insurance is meant to cover the insured in the event of his or her death. The policy would continue to pay off debts on the loan it is tied too after the death of the insured. If the policy lasts long enough and is large enough, then the debt can be paid back entirely. This can be very helpful to the families of insured who die with unpaid debts.
  • Credit Disability Insurance
    This second type of credit insurance covers the insured for disabilities. Even temporary disability can cause serious financial hardship for many people. Credit disability insurance can provide relief as the debt continues to be paid through the insurance policy.
  • Credit Unemployment Insurance
    Credit unemployment insurance covers you in the case that you lose your job involuntarily. It does not cover you for voluntarily quitting your job. Your unemployment must last a certain period of time in order for your benefits to start paying out. Once they do, the policy will typically make the minimum payments on your loan until you’re working again.
  • Credit Property Insurance
    This type of credit insurance will pay for repairs that need to be done or to replace property that is stolen, lost, or damaged in some covered way. Credit property insurance cannot be used for a loan that’s collateral is real estate or a vehicle.

How Do You Get It?

Credit life insurance is different in that it’s directly tied to a loan. When you take out the loan, you sometimes have the option of getting credit insurance along with it. Instead of making separate payments, one for the principle of the loan and one for insurance, the two are combined into one payment. You should have the option to cancel at any time, but may have to go through a waiting period in order to have any monies owed back to you refunded.

In general, credit insurance is more expensive than many other types of life insurance. It’s more limited too since it’s tied to the specific loan. Another downside is that you can’t choose a beneficiary for the policy. The lender of the loan is automatically the beneficiary. While it can help pay some of your debts in the event of job loss, death, or disability, it’s wise to look into other more comprehensive coverage options too.