Credit protection insurance: How does it benefit you?
If your financial crisis is preventing you from repaying your loans on time, credit protection insurance can help you get over it. The policy covers your home loan, credit loan or your personal loan debt. It also makes repayments in the event of your terminal illness, death, unemployment or if you become disable. Credit protection insurance is also referred to as consumer credit insurance or simply credit insurance.
Who offers credit protection insurance
This type of insurance is usually offered by insurance companies. Apart from that, financial institutions such as large banks and credit card companies also offer credit protection policies in partnership with the insurance companies.
Types of credit protection insurance
Based on the type of credit, different varieties of credit protection insurances are available. Check out the types as given below.
• Mortgage protection insurance – It ensures that your mortgage would be taken care of, if you have an unfortunate accident. Your mortgage repayments are made if you are unable to work due to an accident, illness or you become suddenly unemployed. If the borrower dies, the mortgage amount is paid in full.
• Loan protection insurance – This insurance policy ensures that the loan repayments would be made by the insurance company if you become unemployed or cannot work because of any injury or illness. The loans are paid in full if the borrower succumbs to death.
• Credit card insurance – It ensures that your credit card balance would be taken care of, if you are unable to work due to injury, illness or involuntary unemployment. The outstanding balance is paid in full if the debtor dies or become permanently disabled.
Apart from the above categories, credit insurance can be broadly classified into credit life insurance, credit disability insurance, credit property insurance and credit involuntary unemployment insurance.
3 factors to consider before buying credit insurance
Credit protection insurance policies are really helpful if you experience loss of income and cannot afford the minimum monthly payments on your debt. However, it is not a right choice for everyone. You can consider 3 factors to decide whether or not it’ll be beneficial to you.
1. Your total debt amount – Most of the companies would decide your monthly premiums on your total debt amount. Therefore, if your amount is low, the premium would outweigh the benefits of your insurance.
2. Your monthly payments – Estimate the monthly amount that you need to pay for your credit protection and decide whether or not it’s worth to go for this policy.
3. Your eligibility requirements – Go through the terms and conditions of your insurance policy before buying it.
Eligibility criteria for buying credit insurance
You need to satisfy certain eligibility criteria in order to buy consumer credit insurance. The criteria are given below.
1) Your age should be within 18-60 years.
2) You should work for a minimum of 16 hours per week.
3) Maximum loan amount should be within the specified limit.
4) Your monthly benefit should be within the specified limit.
Benefits of credit protection insurance
Credit protection insurance can be really beneficial to the debtor in a number of ways, which are given below.
A) It protects your credit rating as the policy covers your dues.
B) Covers your minimum monthly payments if you become unemployed.
C) Provides coverage on the outstanding credit balance if the debtor dies.
D) Covers your minimum monthly payments if you become disabled.
When you cannot enjoy the benefits
Though credit protection policy covers your monthly debt payment if you are sick or unemployed, yet there are some exclusions, as discussed below.
a) Any self inflicted injury.
b) Pregnancy, childbirth or related conditions.
c) You take drugs or alcohol without doctor’s prescription.
d) You are affected by AIDS, HIV or any related illness.
e) You’ve opted for voluntary unemployment.
f) You become unemployed within 90 days after you take the policy.
g) Illness for which you’ve been prescribed treatment in 1 year time before the start date.
Pros and cons of credit protection insurance
The pros and cons of credit insurance are listed below.
Pros:
• You won’t have to appear for any physical exam.
• You can buy the exact coverage amount required for protecting your loans.
• Cost of coverage is same irrespective of your sex, age and occupation.
• You can even get coverage for small amount of loans.
Cons:
• It is one of the most expensive types of insurance policy.
• There are limitations and exclusions on payment benefits.
It is advisable that you don’t buy credit insurance policies over phone. The identity thieves use this technique to steal your credit/loan details along with your personal information and can open a new credit account in your name.