When you borrow money through a loan or through a line of credit, you may be given the opportunity to purchase credit insurance. This type of insurance policy is designed to protect you against not being able to make your debt payments for unforeseen reasons. Regardless of the type of policy you buy, there are some common terms that should be understood before agreeing to the contract.
How it Works
Credit insurance is a product that can work differently, depending on the type of policy that you buy. With this type of insurance, once a triggering event occurs and you become unable to continue paying your loan payments, the insurance will kick in and provide financial benefits. When this occurs the policy may pay for the entire amount of the debt, or it could simply make your payment for you for a limited amount of time.
Payment Triggers
When purchasing this type of insurance, it is important to understand exactly what could trigger a payment from the insurance company. One type of credit insurance involves life protection. If the owner of the policy dies, the insurance company will pay the outstanding debt. Another type of protection involves disability coverage. If you become disabled, the policy will pay benefits for you. If you become involuntarily unemployed, your policy could also provide financial benefits and make your payment for you until you get a job.
Premium
To obtain this type of coverage you will have to pay an insurance premium to the provider. When you agree to buy credit insurance you need to know exactly how much you are paying in the form of premiums. Besides knowing the amount, you also need to understand how frequently it must be paid. For example, some policies typically include the insurance payment in with the loan payment. Others will bill you separately for this expense.
Other Terms
When getting credit insurance, you need to find out if it covers you for the entire term of the loan or only for a certain portion of it. You should also find out if there is a waiting period before the insurance coverage goes into effect. You may also want to find out if you can cancel the insurance or if it must stay in effect for the entire term of the loan once you purchase it.
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