Insured Loan

What Does Insured Loan Mean?

An insured loan is a debt for which repayment is guaranteed by an insurer if the borrower is unable to repay it.

In the United States, this is also referred to as loan protection insurance.

Insuranceopedia Explains Insured Loan

An insured loan can cover credit card payments, car loans, and other financial obligations that a borrower may be unable to meet due to illness, disability, or unemployment. Lending institutions often recommend this insurance for loan applicants. For car loans specifically, borrowers may also be offered GAP insurance, which pays the difference between what the lender is owed and what the vehicle is worth if it gets totaled or stolen.

This type of insurance may be unnecessary if the borrower’s existing policies, such as disability insurance, already cover their loans. Mortgage borrowers see a similar lender-pitched product, but in most cases, they don’t actually need mortgage life insurance if they already carry a regular term life policy.

Since the lender’s financial risk is mitigated by insurance, the interest rate on insured loans is typically lower.