How to Insure Debt

Credit or debt insurance is insurance that is purchased in addition to taking a loan or line of credit in order to secure the buyer in the event that an illness, injury, job loss or death prevents him from repaying his loan. Debt insurance can either be voluntary or an involuntary part of the contract when applying for a loan or mortgage. The lender is the beneficiary of this insurance, although the premium is paid by the buyer. A few steps can help you determine whether insuring debt is right for you.

Instructions

1

Determine whether the loan or mortgage you are applying for includes debt insurance as part of the contract. Some lenders include the debt insurance as mandatory, but in many cases it is optional.

2

Assess your current financial situation to determine whether your personal insurance would already provide adequate or better coverage than debt insurance. Review your health insurance coverage and savings to determine whether they would amply cover your debt during an event that reduces your income. Keep in mind that debt insurance is usually not automatically approved at the time of application, and your claim may be rejected when you need it.

3

Call or meet with your lender about various rates and premiums of debt insurance and what kind of coverage they offer. Look into other kinds of personal insurance if you do not already have it to see if they could offer more overall coverage for cheaper premiums.

4

Purchase debt insurance from your lender only when you have ruled out the possibility of adequate personal insurance to cover the loan payments and you are certain you can easily afford the extra cost of premiums.