Credit Insurance Is It Right for You
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Credit Insurance: Is It Right for You?
When applying for a mortgage or personal loan, you might encounter the option to purchase credit insurance. Sometimes, it may even be included in your loan proposal. But is it necessary? The decision is yours.
Understanding Credit Insurance
Credit insurance safeguards your loan if you can't make payments. It's usually optional, meaning you're not obligated to buy it from the lender. The Federal Trade Commission (FTC) emphasizes that it’s illegal for lenders to include credit insurance without your consent.
Types of Credit Insurance
1. Credit Life Insurance: Pays off your loan if you pass away.
2. Credit Disability Insurance: Covers payments if illness or injury prevents you from working.
3. Involuntary Unemployment Insurance: Makes payments if you lose your job due to circumstances like a layoff.
4. Credit Property Insurance: Protects the property securing the loan against events like theft or natural disasters.
Key Considerations
Before choosing credit insurance, assess your needs, options, and the associated costs. It might be more beneficial to consider alternatives like life insurance.
Questions to Consider
- What is the premium cost?
- Is the premium included in the loan? If so, it increases the loan amount and associated interest.
- Can you opt to pay monthly instead?
- How will credit insurance affect your monthly loan payments?
- Does the insurance cover the entire loan amount and duration?
- What are the coverage limits and exclusions?
- Is there a waiting period before the coverage starts?
- If you have a co-borrower, what are their coverage details and costs?
- Is the insurance cancelable, and what refunds are available if so?
Protecting Yourself
Before signing loan documents, confirm whether they include charges for optional credit insurance. If you choose not to purchase it, inform your lender. Don't hesitate to find another lender if pressured to buy. Lenders cannot deny you credit based on your decision to decline optional insurance, nor can they compel you to buy directly from them.
If a lender implies that the loan is contingent on purchasing optional credit insurance, report it to the state attorney general, state insurance commissioner, or the FTC. Apply the same scrutiny to any additional products offered with loans, such as auto clubs, security plans, or debt cancellation products.
Stay informed and make choices that best suit your financial situation.
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