What are the types of credit insurance and how can they benefit you?
Credit Insurance is defined as the insurance paid by a debtor in order to guarantee the payment of any outstanding credit balance, if he suffers an accident or disability in future. It is actually a security against any abnormal credit losses.
Why you need an insurance policy If you have an ill-fated accident or you suddenly lose your job, credit card insurance guarantees that your credit balance will be taken care of. It helps you maintain a good credit rating even in times of financial hardship. Your credit card bills are paid for some months if you are unable to work because of your injury, illness or involuntary unemployment. The outstanding balance in the credit card is paid in full if the debtor dies or become disabled permanently.
Types of credit insurance
There are mainly 4 types of credit insurance, which are briefly discussed in the following lines.
• Credit life insurance – This insurance policy helps to pay the outstanding debt owed on your card at the time of your death. However, the company creditor needs to be the beneficiary of the policy.
• Credit disability insurance – This particular credit insurance is helpful in protecting your credit ratings by making the minimum monthly payment that is due on your card. After you become disabled, the insurance company pays the minimum amount due on your card for some months. However, it doesn’t cover any new purchases that you make after becoming disabled.
• Credit involuntary unemployment insurance – It pays the minimum amount that is due on your account if you are downsized or laid off for a specific period. Usually, there is a set time period for making the payments. The insurance doesn’t include any additional purchases after you become unemployed.
• Credit property insurance – Usually this policy comes with your credit card or mortgage. It makes the payment for any purchased item, which gets destroyed or stolen. You can claim this insurance only if it satisfies the conditions for coverage that are listed by the insurance company.
How credit insurance benefits debtors
Credit insurance helps the debtor in many ways that are listed below.
• Covers the outstanding balance on your credit when you die
• Provides coverage on your minimum monthly payments if you become disabled
• Protects your credit rating by covering your dues
• Provides coverage on your minimum monthly payments if you lose your job
• Covers your purchased items that get destroyed in specific incidents
How credit insurance benefits a business
Credit insurance also benefits your business in various ways that are discussed below.
• You can get protection for revenue
• You’re able to get competitive advantage
• Can increase your borrowing capacity
• You’re able to mitigate the risk of non payment
• You can minimize or eliminate letters of credit
• Helps expand your business into international markets
• Enables you easier access to finance
• Gives you peace of mind
4 things to consider before buying the policy
Before buying an insurance policy, you should consider 4 important factors that are given below.
1) The premium you need to pay for your policy
2) The exclusions and limits on the payment of your benefits
3) Waiting period before your insurance coverage becomes effective
4) The penalties you need to pay for canceling a policy
Cost of buying the insurance policy
The cost of an insurance policy depends on the following factors:
• Your debt/loan amount
• The type of your credit
• Type of policy you are taking
The insurance companies usually charge premiums by either using a monthly outstanding balance method or a single premium method.
The reason for insuring credit varies from one person to the other. So, it is really important for you to determine the need for a particular credit insurance. Every policy may not be beneficial for you. Therefore, it is recommended that you go for a credit insurance that proposes to suit your needs in future.
Useful Sites :
Commercial credit insurance – Debtor Insurance gives you protection against non-payment of invoices. Our services include commercial credit insurance and business credit insurance etc.