Should You Buy Credit Insurance?

Consumers who are considering taking out a loan, applying for a credit card or other forms of financing will most likely be offered credit insurance from their lender. Before buying a policy you should know what  credit insurance is and who benefits from the policy.

Credit insurance is available in many forms and basically provides the lender assurance that your loan payments will be made in the event you are unable to make the payment. Depending on which type of insurance you purchase you may be covered if you should lose your job through no fault of your own, if you are required to take a leave of absence from work or in the event of your death. Granted this sounds like a great idea on face value, however like all insurance policies you would be wise to learn more about the basics of credit insurance before purchasing a policy.

• As previously mentioned, credit insurance benefits are paid directly to your lender when a claim is made. In essence you are paying a premium for a policy which offers you no direct benefits.
• Benefits from credit insurance decrease as the balance of your loan decreases.
• Credit insurance is not required as a condition of the loan or other financing.
• Credit insurance can be sold individually or as a package depending on the state in which you live. Packages include credit life insurance, unemployment insurance, property and disability insurance. The problem in buying a package occurs when you are ineligible for some of the benefits of one type of insurance yet are required to pay for it as part of “the package”.
• You can pay for credit insurance in one lump sum or by making monthly payments. If your credit insurance payments are lumped into your loan payment you will not have to pay separately each month however you will be paying interest on your insurance as part of your loan.

Few will argue with the fact that insurance policies are in place to provide coverage and benefits if you experience certain hardships in your life. The reason credit insurance is not always the best use of your money is the fact that the lender receives all the benefits. Of course it is good to know that in the event you could not make your payment there would be some level of coverage. Looking at the big picture however you may be able to buy term insurance life or disability insurance that would be paid directly to you or your beneficiaries. In most cases the price of the latter is in the same ballpark as credit insurance however you will likely have much higher coverage.