Credit Insurance for Your Signature Loan
Getting a loan insured is always an option every time you take out a line of credit. Credit insurance makes payments on your loan should you for any reason be unable to. Of course, it is by no means mandatory that you ever get a loan insured, but for many people it may be a good idea.
What types of credit insurance are there?
Currently, there are four types of credit insurance that will protect your loan should a particular life-event happen.
- Credit Life Insurance: Should you die, credit life insurance will pay off all or some of your loan’s remaining balance.
- Involuntary Unemployment Insurance: Should you lose your job through no fault of your own (meaning you are laid off), involuntary unemployment insurance will make your loan payments on your behalf.
- Credit Disability Insurance: If you become too sick or injured to work, this type of insurance will make payments on the loan until you are well enough to go back to work.
- Credit Property Insurance: Should you have to use collateral to secure a loan this credit property insurance will insure the personal property that you used. Should it be stolen or destroyed by a natural disaster or an accident, credit property insurance will insure it so your loan is still secured.
Do you have to get it insured directly through the lender?
No, this is a common misconception. Many lenders offer the option of insuring through them, but you are not obligated to use them. If a company insists that you insure through them and only them, they are violating federal law and should be reported to the Federal Trade Commission (FTC). Likewise, if they insure your loan without your knowledge or consent (and charge you) this is another violation and should also be reported to the FTC. No lender is allowed to deny credit to a borrower should that borrower either 1) not insure his or her loan or 2) not use them, the lending company, for insurance.
What is the best way to choose a credit insurance company?
Here are some questions you should ask before choosing a credit insurance company:
- Is it possible to pay monthly instead paying for the entire premium all at once?
- How much is the premium?
- If you choose to go through the lender: Is the premium financed as part of the loan? (If so this is a red flag because it will increase the amount of the loan and you will be paying interest on it over the course of the loan term.)
- Can you cancel the insurance at any time? If you do, is there a refund?
- How long do you have to wait until coverage becomes available?
- How long will the insurance cover payments?
- If you have a co-borrower, do they get any benefits from you having coverage?
Is it right for you?
Only you can answer that question. Did you secure your loan with your house or family car? Has your health been a little up and down lately? Is your job 100% secure? Do people depend on you? If any of these questions cause you to think it might be a good idea, it probably is.