What Is Credit Insurance?
It’s no secret that many Americans are still struggling with credit card debt. Right now, the average amount of debt in each household is about $5,700. But what happens if someone in the household gets sick, injured, or dies? Oftentimes that debt is passed on to a spouse or other family member. This is where credit insurance comes into play.
What Is Credit Insurance?
Credit insurance is a type of insurance like any other. It’s purpose is to pay off an individual’s credit card and/or loan balance if they’re suddenly unable to make payments due to death, disability, or unemployment.
There is also a type of credit insurance for businesses that protects them from missing payments because of customers or clients who don’t pay on time (or at all).
Who Sells Credit Insurance?
Unlike auto, life, or property insurance, credit insurance is most commonly sold as an add-on by the bank or institution providing the loan or credit card. It may be offered upfront at the time of application, or later in the life of the loan.
How Much Does Credit Insurance Cost?
Credit insurance premiums will vary, usually based on the amount of debt. The higher the debt (or borrowing limit), the higher the premiums will typically be.
Credit insurance premiums are commonly added as a fee on a borrower’s monthly loan payment or credit card bill, but may also be paid upfront in one lump sum payment.
Types Of Credit Insurance
There are five primary types of credit insurance available. Four are designed primarily for consumers, and the fifth is specifically for businesses.
1) Credit Life Insurance: This pays off an individual’s outstanding credit or loan debt in the event of death and prevents family members from having to pay.
2) Credit Disability Insurance: In the event an individual becomes disabled and can’t work or earn income, this will make the minimum payment directly to the lender. There is typically a waiting period before this benefit kicks in.
3) Credit Unemployment Insurance: Makes minimum payments if an individual loses their job through no fault of their own. Individuals may have to be unemployed for a certain period of time before the benefit is available.
4) Credit Property Insurance: If an individual has used personal property to secure a loan (like a car or a home) and that property is destroyed, this will protect them.
5) Trade Credit Insurance: Protects businesses that sell products and services on credit. If a customer doesn’t pay, this will protect them from going broke.
Do You Need Credit Insurance?
For those who have bad credit already, high-risk jobs, or simply struggle to make payments each month, credit insurance may be a good choice.
On the other hand, paying for credit insurance is an additional expense. For those who have a good credit history and don’t have trouble making payments each month, it may be better to put the money that would be spend on credit insurance to better use.
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