This post in collaboration with Paul Brian
Credit card spending continues to increase in the United States. According to NerdWallet’s 2018 household debt survey, credit balances carried month to month increased five percent in late 2018 to surpass $420 billion.
The same survey found that around nine percent of Americans who have credit card debt don’t think they’ll ever be completely free from it. Considering the average revolving balance among households is nearly $7,000, the hopelessness makes sense.
While careless spending may be the reason for many people’s misfortunes, it doesn’t tell the whole tale. Aggressively high interest rates can punish any type of financial hardship, self-imposed or otherwise.
In these cases, things like credit insurance can prove valuable. There are many types of credit insurance, ranging from consumer to business needs. However, for the purpose of this article, we’ll discuss what consumer credit insurance is and the protections it offers.
What Is Credit Insurance?
Credit insurance is just as it sounds. It’s an insurance policy that a borrower has on their credit card. It’s a safeguard that pays off the credit card debt if something unexpected occurs that makes repayment difficult. The main types of credit insurance include credit life insurance, credit disability insurance, credit unemployment insurance, and credit property insurance.
How Do These Different Coverages Protect Me?
On a broad level, understanding how credit insurance protections work is quite straightforward. Credit life insurance pays off your debt if you pass away instead of your family being burdened by what you owe, while credit disability will cover your payments if you become disabled and aren’t able to work.
Less common types of credit insurance are unemployment insurance, which takes care of payments if someone is laid off; and credit property insurance, which protects property used to secure a loan if the property is damaged.
As ValuePenguin notes, any of these coverages can be taken out as a single or joint policy. A coverage type may also be worded differently depending on the institution offering it.
Do You Need Credit Insurance?
Credit insurance seems prudent to have, but how essential is it? It’s important to have financial protections in place that will cover you and/or your family should something unexpected occur, but doing so via credit insurance is typically the more expensive option to take.
This of course excludes situations in which credit insurance is required by the lender, such as in mortgage loans. However, this usually only happens when the borrower puts down less than 20 percent. This insurance can also be canceled once the borrower has built their equity over 20 percent.
As you peruse credit insurance terms and offers, evaluate the benefits and costs of life, disability, or supplemental unemployment insurance packages to ensure you’re getting something you actually need.
If you do find a credit insurance package you like, be sure to look at the fine print. It’s often a lack of preparedness and understanding that buries consumers in debt in the first place, which a quick scan of Freedom Debt Relief reviews unfortunately verify.
Like any credit card agreement, credit insurance policies are packed with jargon, small font, and exclusions. Ask questions until you know what you’re getting in a credit insurance policy. Ask questions like:
- Does the insurance cover the entire loan’s entire term and balance?
- Are there any exclusions that would impact coverage?
- Does the lender have the right to change or cancel the policy at their discretion?
- How long do the benefits take to be paid?
The last thing you want to do is pay for a policy monthly only to find that it doesn’t protect you in your time of need.