Many people use credit to afford what they need and then can pay what they owe over time according to the credit agreement. Sometimes, an individual may choose to take out credit insurance which covers him or her for loan or credit card payments if he or she is unable to pay, usually because of an unexpected life event. Essentially, it ensures that the lender is paid and can help the borrower maintain his or her credit.
Credit insurance overview
Often, credit insurance is offered by vehicle companies, banks, credit unions and other financial institutions. It is optional, not required. The borrower pays a fee for the coverage and he or she qualifies for it when the loan is approved.
There are several types of coverage. Credit life coverage pays for the loan in the event of the borrower’s death. Credit involuntary unemployment and credit disability make monthly payments for a limited time if the borrower loses his or her job or becomes disabled.
Credit personal property covers items that are stolen or destroyed and credit family leave covers payments if the borrower has to leave his or her job to care for a family member for a limited time.
Coverage disadvantages and denial
One of the disadvantages of credit insurance is that it may cause the loan to be unaffordable and dishonest lenders may use it to increase the cost of the loan. It is also often paid separately from the loan.
Also, if a claim for coverage under the policy is denied, the borrower can face significant financial difficulties. If an individual needs assistance, an experienced attorney can help.