- Financial Insurance

Credit Insurance

One type of credit insurance is for consumers. This covers your loan, credit card or store credit card payments to your lender if you become disabled or are unemployed through no fault of your own and pays off the loan balance in the event of your death. Another type of credit insurance is designed to protect businesses against losses resulting from their debtors becoming insolvent or defaulting on their payments.

Consumer credit insurance is optional. By law, a credit card company or lender cannot make the purchase of credit insurance a condition of the loan. The premiums are usually paid monthly and are based on the balance of the debt. However, in single premium credit insurance the premiums are charged as a lump sum when the loan is financed and the costs of the insurance are rolled in with your loan payments.

Consumer credit insurance is usually sold as a package, including credit life insurance, disability insurance, unemployment insurance and property insurance. Credit life insurance pays off the entire amount of the covered loan or loans if you die up to the limit of your coverage. Credit employment and disability insurance usually make minimum monthly payments for a set number of months. Credit property insurance offers protection if you used your property as collateral for a loan or line of credit. If that property is damaged, the credit insurance pays to repair or replace the property.

Unlike life or disability insurance, consumer credit insurance coverage is limited to specific debts. However, if you do not have life or disability insurance or you would be considered uninsurable or other reasons, credit insurance may be a good choice as it has the advantage of not requiring medical underwriting. Credit insurance can be an economical option for older consumers whose term life or disability insurance premiums would be very high. If you have several credit card accounts, lines of credit, mortgages or other loans and you have credit insurance for each, it would usually be more cost effective to purchase term life or disability insurance if you are insurable.

Credit insurance for businesses, sometimes called trade credit insurance, protects businesses from non-payments from their debtors. Coverage usually includes the loss of accounts receivable as a result of debtor insolvency, delayed or defaulted payments, cancellation of contracts, export complications and delays. Credit insurance for catastrophic loss sets a cap, above which the insurer pays the losses. Trade credit insurance can allow a company to increase its sales by allowing it to expand customers’ credit limits while insuring itself against the additional risk.

When considering consumer credit insurance you should evaluate the coverage, flexibility and cost of credit insurance as compared to traditional whole life or term insurance and disability insurance. Trade credit insurance can protect a company from the risk of non-payments and allow it to expand its sales.