Everything You Need To Know About Credit Insurance

You have read a lot about rebuilding credit, factors affecting credit scores, options for getting rid of debt, and bankruptcies. Have you ever considered credit insurance? This type of insurance covers missed loan or credit card payments due to disability, death, destruction, unemployment, loss of property or any other occurrence. The reasons behind missed payment can be beyond your control.

Having credit insurance gives you peace of mind. However, you should keep in mind that credit insurance is not for everyone. It might even cost more if you are choosing a wrong policy. So, you should be able to choose the right policy.

How Does It Work?

A credit insurance policy covers certain events such as death, unemployment, disability, loss of property or destruction. Your credit insurance policy kicks in when one of these events occur and you miss a payment. Your lender can sell a policy that might be included in the loan paperwork. According to the Federal Trade Commission, the lender must disclose if the credit insurance policy and any other products are included in the contract. The FTC also keeps a lender from denying credit if you don't buy his credit insurance.

How Much Does It Cost

Assuming that you are a 30 years old individual in great health, credit insurance can cost you around $370 for $50,000 of coverage. Just like your car or home insurance policy, the cost of credit insurance also depends on some factors including:

• Total amount of debt

Credit insurance policy

Loan or credit type

Your state

Closed-End Debt and Open-End Debt

Credit insurance differs between closed-end debt and open-end debt. You should check your credit insurance terms to know how you will be charged for that policy.Impact Of Credit Insurance On An Open-end Debt In an open-end debt, you can borrow multiple times until an agreed limit is reached. Though there is not a set repayment schedule for the full balance, you need to make a minimum monthly payment. When it comes to the credit insurance premium, you could be charged on a monthly basis. Either your end-of-month balance or average daily balance is considered to calculate payment every month. Though it is included in your monthly minimum payment, the charges are mentioned separately on the statement.

Impact Of Credit Insurance On Closed-end Debt In a closed-end debt, you have to repay the debt during a set time period. This happens on a monthly basis. The credit insurance cost for a closed-end debt could be charged either as a single or monthly premium.

Single Payment

The cost is solidified in the beginning. This cost is added to the amount you have borrowed. This does not only increase the total sum borrowed but also the total interest you will have to pay. If you want to avoid monthly payments but want coverage, single payment is the right option available to you.

Monthly Payment

To calculate the cost, the premium rate and the outstanding balance on the billing date of that month are multiplied. This is then added to the monthly payment. So, if you want to spread out your payments, monthly payment is ideal for you.

Is It A Good Choice For You?

If you can afford it and the credit insurance policy covers incidents that are not already covered by your other policies then it is a good choice for you. Following are the important questions you have to ask at the time of choosing your credit insurance option.

• Do you already have an insurance policy covering you?

How can you compare your credit insurance policy to your other policies?

Run through the following questions while evaluating specific policies:

What does the policy cover and what it does not?

Can the lender or insurance company cancel your insurance?

Is the insurance company or lender allowed to change the policy without letting you know?

How much does it cost? What is its impact on your monthly payments?

Is it possible to make monthly payments without having it as a part of the loan?

When do you get your monthly payments paid?

What difference does it make in your monthly payments if you are not taking credit insurance?

In case you are allowed to cancel the insurance, will you receive a refund?

Following are the different types of credit insurance:

• Credit life insurance

Credit disability insurance

Credit unemployment insurance

Credit property insurance

Trade credit insurance

In case you feel that you cannot afford credit insurance, make payments on time to keep your credit score from falling. If your credit score is already low, work on rebuilding credit score. You can also work with a company offering credit repair services.

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