Credit insurance is a risk management method as well as an insurance policy that offers the policyholder the ability to pay off their debt in case they pass away, go into bankruptcy, or become disabled. It can also cover your payments in case of unemployment or even if you become insolvent. At times, lenders may require you to purchase it as part of the loan agreement. It is, however, very important to understand the different types available and the exact details of a policy before purchasing one.
Mortgage Protection Insurance
This is a policy that pays off your mortgage loan payments in case an event that prevents you from being able to pay occurs, such as disability, unemployment, or death. The amount of coverage depends on the exact policy and the insured events. In case of disability, the payment depends on your occupation and ends after a certain period. This is similar to what happens in case of unemployment. As for death, the insurance company directly sends a check to the mortgage company.
However, it is debatable if you need mortgage protection insurance. It usually depends on your financial situation, health and what you think would occur if you die. It is a definite guarantee in case of an emergency, but it is not always necessary. In fact, mortgage protection life insurance may not be worth it at all.
Line of Credit Protection
A bank or other financial institution may offer line of credit protection to an individual or business. It includes overdraft protection, a demand loan, a special purpose finance source, special packing credit, a term loan and also a discount, among others. Line of credit protection ensures payments continue in the event of death or disability of the policyholder. In case of disability, the policy pays the minimal amount for a period of up to 60 months or until the policyholder finds an alternative form of income to pay the debt. This type of insurance could be of great help due to the fact that it is non-taxable and cannot be reduced because of any amount received from another public or private source.
Credit Card Protection
This policy is meant to pay off credit card balances owed at the time of the cardholder’s death. It also makes the minimal payment in case of disability or being laid off, but only for a specified amount of time. However, these policies have a number of variations in the details. In addition, there are waiting periods and deductibles that can prevent an individual from benefiting from the policy.
Keep in mind that signing up for a credit card protection policy is very easy, but cancelling it is very complicated. It is not that essential because there is a high probability that another policy already covers it. There are also cheaper and more flexible policies that cater to the problems that may come with the death or disability of a credit cardholder. In addition, collecting claims is difficult due to the burden of proof.
Loan Life and Disability Protection
This is a type of credit insurance that can financially assist you and your family in case you are not able to continue paying an outstanding loan. This could be due to a disability, illness or even an injury. In other cases, you may pass away, and you definitely do not want to leave your dependants unprotected and paying for a loan you may have taken. Loan life and disability protection can cover your monthly loan payments as well as any outstanding balances you may have at the time of your passing. In addition, there is a possibility of the policy covering not only the borrower but also the co-borrower.
Business Loan Protection
This type of credit insurance assists businesses pay their outstanding loans, commercial mortgages or overdraft in case the main owner or operator of the business passes away or is diagnosed with a particular critical illness. It is also a type of life insurance that pays a certain sum in the event of the insured's death to help pay off an outstanding debt. The death of the owner or operator can lead to a host of issues, and this is where the business loan protection comes in handy, especially if the business owner had invested their personal assets as security for the loan.
Credit insurance comes in many forms, but it typically helps the policyholder pay off some type of loan and thereby protect their credit score. It also offers peace of mind to the insured and any family members who would have to settle any outstanding loans in case of the former's death. Therefore, it may make sense for some consumers to invest in certain types, but keep in mind that other policies, such as health, disability, or life insurance policies, may offer more coverage for the money.