When you buy a house, car, or make a major, you may need to apply for a loan. In this case, the lender may offer or require you to purchase credit insurance as security for the loan; however, it may not be advantageous for you. Keep in mind that it is illegal for the lender to include it in your loan package without your knowledge or approval.

About Credit Insurance

This type of policy covers the loan payments in the event that you cannot pay for reasons specified in the contract, such as unemployment, disability, or death. There are four main types available, but whether they are right for you depends on your specific financial situation.

Credit Life Insurance

Credit life insurance is designed to pay the remaining balance on a credit card or loan should the insured die. The premium is typically a percentage of the outstanding balance or principal amount borrowed. Before opting for this type of coverage, consider whether an adequate amount of life insurance would better suit your needs as it can accomplish the same objective. The latter approach also gives the beneficiary flexibility in spending the benefits.

Credit Unemployment Insurance

Credit unemployment insurance pays the minimum monthly payment on a loan or credit card in the event you become unemployed due to no fault of your own. As with credit life insurance, the premium is based on the loan amount. However, if you have sizeable savings, high job security, or other similar factors in your favor, it may not be worth the cost.

Credit Disability Insurance

Similar to credit unemployment insurance, credit disability insurance covers the minimum payments on credit cards or loans should you become disabled. Like with all types of credit insurance mentioned, the premium is based on the amount borrowed. If this is a concern due to your line or work or other factors, it may be worth it to compare the costs and coverage amounts with other disability insurance policies.

Credit Property Insurance

The fourth major type of credit insurance, credit property insurance insures personal property that you purchased with a loan or credit card, or property you are using as collateral for a consumer loan. In case the property is damaged, destroyed, lost, or stolen, this policy assures you and your lender than you can recuperate the property's full value. Because it typically does not require a deductible, it can be a sensible way to supplement your homeowner's or renter's insurance policies, especially for major appliances or equipment.


Although credit insurance can come in handy as a financial lifesaver and protect your credit rating in case of unfortunate events, it can be very expensive as well. In fact, other forms of insurance may be cheaper and more practical. Before you decide on one, make sure you understand all the fine print and details so the costs do not outweigh the potential benefits.