Credit Insurance Defined
Credit insurance is a type of insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment. There are three types of credit insurance, each paying its benefit in different ways: This type of life insurance pays off all outstanding loans and debts if you die. Also called accident and health insurance, this type of credit insurance pays a monthly benefit directly to a lender equal to the loan’s minimum monthly payment if you become disabled. There are three kinds of credit insurance — disability, life, and unemployment — available to credit card customers. Credit insurance is an optional feature of a credit card, and you don't have to purchase it. It may be wise to consider if the other insurance you have in place is sufficient enough without purchasing credit insurance. With this type of insurance, if you become involuntarily unemployed, this insurance pays a monthly benefit directly to the lender equal to a loan’s minimum monthly payment. Credit insurance is a type of insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment.
What is Credit Insurance?
Credit insurance is a type of insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment.
Credit insurance is marketed most often as a credit card feature, with the monthly cost charging a low percentage of the card's unpaid balance.
How Does Credit Insurance Work?
Credit insurance can be a financial lifesaver in the event of certain catastrophes. However, many credit insurance policies are overpriced relative to their benefits, as well as loaded with fine print that can make it hard to collect.
If you feel that credit insurance would bring you peace of mind, be sure to read the fine print and compare your quote against a standard term life insurance policy.
Three Types of Credit Insurance
There are three types of credit insurance, each paying its benefit in different ways:
Credit Life Insurance
This type of life insurance pays off all outstanding loans and debts if you die.
Credit Disability Insurance
Also called accident and health insurance, this type of credit insurance pays a monthly benefit directly to a lender equal to the loan’s minimum monthly payment if you become disabled.
For some credit card holders, credit insurance may be a costly feature in comparison to its benefits.
You must be disabled for a certain amount of time before a benefit is paid. In some situations, the benefit is retroactive to the first day of disability. In other cases, a benefit may begin only after a waiting period is satisfied. Common waiting periods for credit disability insurance are 14 days and 30 days.
Credit Unemployment Insurance
With this type of insurance, if you become involuntarily unemployed, this insurance pays a monthly benefit directly to the lender equal to a loan’s minimum monthly payment.
You must remain unemployed for a certain number of days before a benefit is paid. In some cases, the benefit is retroactive to the first day of unemployment. In other cases, the benefit begins only after the waiting period is satisfied. The common waiting period for credit unemployment insurance is 30 days.
8 Questions to Consider Before Purchasing Credit Insurance
Related terms:
Credit Life Insurance
Credit life insurance is a policy designed to pay off a borrower's debt if the borrower dies. read more
Debt Cancellation Contract (DCC)
A debt cancellation contract (DCC) modifies loan terms to cancel all or part of a customer’s obligation to repay an extension of credit from a bank. read more
Disability Income (DI) Insurance
Disability income (DI) insurance provides supplementary income in the event of an illness or accident that prevents the insured from working. read more
FDIC Insured Account
An FDIC Insured Account is a bank or thrift account that is covered or insured by the Federal Deposit Insurance Corporation (FDIC). read more
Life Insurance Guide to Policies and Companies
Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies. read more
Term Life Insurance
Term life insurance is a type of life insurance that guarantees payment of a death benefit during a specified time period. read more
Voluntary Accidental Death And Dismemberment Insurance (VAD&D)
Voluntary accidental death and dismemberment insurance (VAD&D) pays cash in the event the policyholder is killed or loses a specific body part. read more