Mansell, Engel & Cole

Understanding credit insurance

Anyone who has ever worked in politics knows that for every issue there is a lobbying group, perhaps two – one pro, one con. If you happen to be a lover of all things snake, you might find your voice with the United States Association of Reptile Keepers.

In some ways, the insurance market mirrors life in the same way. For every area of potential risk, there is a carrier ready to offer an insurance policy against it. Did you know that Lloyd's of London offers lottery insurance to companies worried about suffering a mass exodus if employees form a pool and win? The only thing that might be worse is if that happened and the insurer denied the claim.

Credit insurance is a kind of coverage many in Oklahoma may not be familiar with. It might be something a lender asks you to purchase the next time you apply for a mortgage or take out a personal loan. It's a hedge the lender wants against the risk that something might happen that prevents you from being able to cover the payments.

It might take the form of life insurance or disability coverage. There are also policies to pay your bill if you become involuntarily unemployed or to protect against the loss of personal property put up as collateral for the loan.

It is possible for a lender to require such coverage as a requirement for approval, but under Oklahoma law, you need to know that you have the right to choose your supplier. In many cases, the coverage is purely voluntary and following are some questions the Federal Trade Commission recommends you ask yourself before making any such purchase.

  1. Is the risk something an existing policy would already cover?
  2. If the premium cost is rolled into the loan, what will it do to the payments?
  3. Could you save money if you bought the policy separately?
  4. What policy exclusions (fine print) might result in a claim denial?
  5. If you have a co-signer on the loan, will coverage be needed on him or her?

This is not a comprehensive list. Wise consumers should always consult with a professional before making such a decision. And if a claim is denied, a discussion should be held with an experienced attorney to understand your rights.

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