Do the Benefits of Credit Insurance Apply to You?
Credit Insurance is an insurance policy that is usually offered by a credit card company or unsecured small loan lender, and is associated with the debt incurred by a loan or line of credit. It assures that the payments will continue to be made to the lender, in the usual and pre-agreed upon amount, according to the terms of the loan in the event that the debtor is unable to financially make payments for a time period. This situation may arise if the individual becomes ill, has an accident, or becomes involuntarily unemployed, and has no or a limited income. It assures that the creditor is paid, and gives the debtor a feeling of peace of mind.
The premium costs are generally paid monthly depending on the amount of the balance of the loan or the credit card balance. In cases where the balance of either is large, it may e advantageous to purchase the credit insurance, to protect against future unknowns. Having the ability to keep up with one's payments while ill and not working for a year may well be the difference between going back to work in a good financial status or facing bankruptcy. However, if the loan balance is small or the credit card is largely unused, the credit insurance monthly premium could be nearly equal to the minimum payment and purchasing the insurance would result in paying the loan off twice, figuratively and literally.
In this case, it is nearly always advisable to speak with the creditor, advising him of the nature of the problem, the time of interrupted payments, and propose a new payment plan. This could be a reduced payment for the time of illness or time-spent unemployed. followed by higher payments after the situation is resolved. If the creditor does not agree, it may make better financial sense to use savings to keep up with the payments. This may still result in being more cost effective than having a pre-purchased credit insurance policy. A term life or disability policy for the amount of the debt may also be a better alternative.
The decision to buy a credit insurance policy is an individual one and depends upon the extent of the individual's debt, the terms offered and the economic stability of his workplace. Certainly when most employees know that their company is in trouble and many are likely to loose there jobs the canny individual will investigate two things: the job market and credit insurance.
by Sally.Anderson 19 years ago