Credit & Life Insurance
Credit insurance protects the borrower and the lender in case when the borrower cannot make payments due to death, disability or unemployment. It is sold in connection to a loan account or a credit card. Credit life is one of the insurance products that lenders may offer in connection with a loan or a credit card.
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Types of Credit Insurance
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Credit life insurance pays off the borrower's remaining loan balance if he dies during the term of the coverage. Credit disability insurance covers a specified number of monthly payments if the borrower becomes disabled during the term of the coverage. Credit involuntary unemployment insurance pays a specified number of monthly payments if the borrower becomes involuntarily unemployed during the term of the coverage. Credit property insurance covers the collateral for the loan and pays off the loan if the property is damaged or lost during the term of the coverage.
Credit Life Insurance or Term Life Insurance?
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A borrowers may wonder if he needs credit life insurance if he already has a term life policy that covers his assets in the event of his death. In certain situations credit life policy may offer a better rate. Term life insurance premium increases with age, so obtaining a separate credit life coverage on a loan may be of a greater benefit for older borrowers. Credit life insurance does not require a medical evaluation. A borrower with a serious medical condition, which makes him unable to obtain a term life coverage, also will benefit from a credit life policy when he gets a loan.
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Credit Insurance Premiums
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Credit insurance premiums depend on the amount of the loan. On credit cards and open-ended loans, the premium is calculated based on the current balance. Usually, premiums are included in the monthly payments. In some cases, you may be able to pay it up front. A borrower has a right to cancel the policy at any time. If he cancels within the first 10 days, he is entitled to the full refund of the premium. If he cancels later, the refund will be prorated.
Legal Aspects
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Lenders cannot require credit insurance, including credit life insurance. It is illegal to include insurance products with the loan without notifying or discussing it with the consumer. A creditor cannot require a borrower to obtain a credit life insurance policy based on age or her health condition. Lenders cannot deny credit if borrowers don't buy credit insurance. Credit property is the only insurance product that creditors may require borrowers to have.
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References
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