If you've just taken out a loan, or are in the process of borrowing money or signing up for a credit card, your lender may offer you credit insurance. The policies promise to pay your loan if you die, go on disability or lose your job. You might wonder if you really need credit insurance.
Credit insurance is optional. However, before taking out a policy, weigh its advantages and disadvantages. Studies by consumer groups suggest that credit insurance may not be a good value for your money. Do your homework before you buy.
Here are some of the basics of credit insurance:
* You are not required to buy credit insurance as a condition of any loan or financing.
* You must purchase credit insurance at the institution where you obtain your loan.
* Credit insurance is most commonly offered as a group policy through a bank, credit union or vendor such as an auto dealer or furniture store, although you may be able to buy a policy individually.
* Credit insurance benefits are first paid to the lender, not to you, in the event you make a claim. Any excess benefit will be paid to you.
* The credit insurance benefit decreases as your loan balance decreases.
* There are two primary ways to pay for credit insurance: monthly premiums or a single premium. Some "single-premium credit insurance" gets added to your principal and financed with your loan when you buy new furniture or a new car. That means you don't have to write a check for the credit insurance but you're paying interest on those premiums.
* Credit insurance is often sold in a package, which typically includes credit life insurance, disability insurance and unemployment or property coverage. In some cases, your only choice is to buy the whole package or none, even if you are ineligible for benefits under some of the policy types. Some states mandate that you must be offered individual coverage.
* Credit insurance can be purchased without a medical exam and the premium does not vary according to your age, unlike life insurance.
* Credit insurance may not pay if you have a pre-existing health condition.
* A credit insurance application may ask for your medical history. You may not be eligible for credit insurance if you have had a serious medical condition like cancer or heart disease.
* Some credit insurance will not cover the full amount of your outstanding loan or the full term. For example, in New York the maximum allowable coverage for credit life insurance is $220,000 and you may have a higher mortgage; some policies may cap the amount at less. The maximum amount for all other debts is $55,000.
* The lender or insurance company can cancel your credit insurance with advance notice if you pay your premiums in monthly installments. If you've paid with a single premium, your credit insurance cannot be cancelled.
Credit insurance is optional. However, before taking out a policy, weigh its advantages and disadvantages. Studies by consumer groups suggest that credit insurance may not be a good value for your money. Do your homework before you buy.
Here are some of the basics of credit insurance:
* You are not required to buy credit insurance as a condition of any loan or financing.
* You must purchase credit insurance at the institution where you obtain your loan.
* Credit insurance is most commonly offered as a group policy through a bank, credit union or vendor such as an auto dealer or furniture store, although you may be able to buy a policy individually.
* Credit insurance benefits are first paid to the lender, not to you, in the event you make a claim. Any excess benefit will be paid to you.
* The credit insurance benefit decreases as your loan balance decreases.
* There are two primary ways to pay for credit insurance: monthly premiums or a single premium. Some "single-premium credit insurance" gets added to your principal and financed with your loan when you buy new furniture or a new car. That means you don't have to write a check for the credit insurance but you're paying interest on those premiums.
* Credit insurance is often sold in a package, which typically includes credit life insurance, disability insurance and unemployment or property coverage. In some cases, your only choice is to buy the whole package or none, even if you are ineligible for benefits under some of the policy types. Some states mandate that you must be offered individual coverage.
* Credit insurance can be purchased without a medical exam and the premium does not vary according to your age, unlike life insurance.
* Credit insurance may not pay if you have a pre-existing health condition.
* A credit insurance application may ask for your medical history. You may not be eligible for credit insurance if you have had a serious medical condition like cancer or heart disease.
* Some credit insurance will not cover the full amount of your outstanding loan or the full term. For example, in New York the maximum allowable coverage for credit life insurance is $220,000 and you may have a higher mortgage; some policies may cap the amount at less. The maximum amount for all other debts is $55,000.
* The lender or insurance company can cancel your credit insurance with advance notice if you pay your premiums in monthly installments. If you've paid with a single premium, your credit insurance cannot be cancelled.
