What Is Credit Insurance and Is it Worth It?

Making sure your credit is up to par is something that many Americans think about daily. Being able to buy a home and car is something many strive for, and excellent credit can help you get the lowest rates possible. But what do you know about credit insurance?

What Is Credit Insurance?

Most people know about automobiles, home insurance, or life insurance. It is something that everyone needs in life. Credit insurance may be one type of insurance that you are unfamiliar with. This is the type of insurance you get to help cover your payments to lenders if you lose your job, are unable to work because of a disability, in case of death, or another reason that might affect your ability to pay lenders.

How Does Credit Insurance Work?

1. Purchase and Policy Activation

It is best to know what types of credit insurance are available depending on your situation.

Credit life insurance covers the costs of your outstanding debts in the event of your death.

Credit disability covers the payments to your lender if you are disabled, became disabled, or are ill and cannot work.

Credit involuntary unemployment is when the insurance pays the lender a few times after you are fired, and it isn’t because you’re at fault.

Involuntary loss of income insurance is similar to credit involuntary unemployment. It is used when you are let go from your job or fired, but the payments are not limited.

Deciding which type of credit insurance works for you and your needs is entirely up to you.

There are key things to consider.

The premium for credit insurance can be more than other insurance such as car, health, and life insurance. This is all influenced by the type of loan you have and how much debt you are protecting.

It’s good to know that the policies have certain stipulations. Some of these policies have waiting periods, which can be a hassle if you are looking for coverage right away. If you choose credit disability insurance, there is a possibility your claim can be denied if you visit a doctor for a health condition you visited a doctor for before getting the insurance.

2. A Trigger Event Occurs

Credit disability insurance allows you to have your bills covered in the event you are injured or die. The death benefits can go to your lenders. So, if you have beneficiaries, they would need to file a claim with the insurance company in the event of death to receive benefits.

3. Claims Processing and Payouts

The insurance company receives the claim, making sure based on the terms there is coverage based on the policy. If someone does pass away, the remainder of the balance is paid to the lender. For credit disability and unemployment insurance, the insurance company makes monthly payments to your lender.

4. Continued Loan and Policy

After the insurance company pays off missed payments, you and the beneficiaries go back to paying monthly payments like before. You must keep in mind that after the credit insurance has paid the missed payments, the lender can choose to renew or end the lending terms with them.

What are the Different Types of Credit Insurance?

Credit Life Insurance

Credit life insurance pays off your loan in the event you pass away. It is based on the loan amount.

Credit Disability Insurance

Credit disability insurance is a type of insurance used if you become disabled or ill and can no longer work.

Credit Involuntary Unemployment Insurance

This type of insurance is like credit disability insurance, but the only difference is it is only for a limited time and not ongoing.

Credit Property Insurance

This type of insurance covers lost or damaged items that could have been damaged or stolen during certain events.

Is Credit Insurance Worth It?

One thing to think about is whether it is financially worth it. Can you afford to pay this every month and continue to pay the bills and debts that you currently have? Depending on your situation, credit insurance can be smart too, especially if you have an illness or become disabled or ill. For others, you must make sure it can fit into your budget. You could end up paying more for credit insurance than you pay for mortgage or health insurance.

FAQs About Credit Insurance

Is credit insurance mandatory?

Credit insurance is not something that you have to get. It is something you can purchase if it makes financial sense. It can make more sense to get credit insurance if you are going to take on extremely large loans as it can give you financial security. You can go over your monthly budget and expenses before moving forward with credit insurance.

How much does credit insurance cost?

The cost of credit insurance varies. This is based on the type of credit you have, the amount of debt you have, your credit insurance policy, and the lender you choose. Studying what works and what doesn’t work in your credit insurance plan can make all the difference. The cost monthly for credit insurance can be low for younger individuals who are on top of their credit and debt. When your credit is rocky, it can cost more to have credit insurance.

Where can I buy credit insurance?

Many lenders can provide credit insurance. Make sure to research the lender and credit insurance policy before moving forward and make sure it makes sense financially.

Bottom Line

If you want to know more about your credit score and how to build your credit, start a monthly membership with CreditBuilderIQ. You can get a better understanding of your credit and how to help get you and your credit where it needs to be.