What happens if you get laid off and can’t make your mortgage payment? How about if you get in a car accident and have to miss work? How do you find the money to cover your credit card bills?
These are a few of the situations that credit insurance is designed for. However, credit insurance does not come free of charge.
So how do you decide if it’s worthwhile?
Let’s take a look at the four popular types of credit insurance, and whether or not they make sense for your financial situation.
1. Credit life insurance
If you unexpectedly pass away, you could be leaving a family member stuck with your bills. Some of these bills may include expensive mortgage payments that your partner may not be able to afford without you.
Credit life insurance instantly pays off insured loans in the event of your death. This prevents others from being stuck with the monthly payment. Or, even worse, possibly facing foreclosure if they’re unable to afford mortgage payments.
If you have regular life insurance, it may include a big enough payout that credit life insurance is not necessary. So think twice before signing up if you have other coverage.
2. Credit disability insurance
Like the name implies, credit disability insurance kicks in if you are disabled in an accident or due to a health problem. This product is also sometimes sold as credit accident insurance or credit health insurance.
If you are unable to make your regular scheduled payments due to illness or injury, credit disability insurance covers your payments until you are able to make your payments again.
Keep in mind though that many employers offer disability insurance, which offers income replacement in the event of a disability. This could be used in place of credit disability insurance.
Group policies are typically a better deal when it comes to employee disability insurance. So if you get this from work, it could be redundant to also pay for credit disability insurance.
Like with credit life insurance, be careful to avoid double coverage. Also, if you are permanently disabled, you may qualify for a student loan discharge.
3. Involuntary unemployment insurance
When our grandparents were young and employed, they probably had one of those jobs where you could have the same employer for your entire career. They probably received regular pay and maybe even a nice pension as long as they performed satisfactorily.
Unfortunately, those days are long gone. Nowadays, it’s common to read about mass layoffs at even the biggest companies. Telecom, oil and gas, and tech industry jobs have proven to be volatile, even for the most valuable workers.
If you are laid off without cause, involuntary unemployment insurance covers your monthly payments to protect your property and your credit when your income is unexpectedly halted. This insurance can be a big financial help and hold you over until you find your next job.
4. Credit property insurance
Credit property insurance covers property purchased with a loan or credit card.
For example, if you get credit property insurance on your car and it’s destroyed by vandalism, credit property insurance kicks in and covers the payments for the lost property.
Homeowners and auto owners typically always have property coverage, so paying for this type of credit insurance may be an extra, unnecessary expense. However, for purchases made with a credit card, those items are typically not insured unless covered by a renter’s insurance or homeowner’s policy.
Lenders like credit property insurance because it acts as an additional layer of protection to ensure they get their money back. On the other hand, it is extra protection for the lender at your expense.
How to get credit insurance
In some cases, a lender may try to sell you credit insurance as part of a new loan package. Sometimes it is automatic unless you opt out, so always look at what you are agreeing to pay for before closing any loan.
Credit insurance is not compulsory by law, so a lender can never force you to get credit insurance.
If you do decide you need credit insurance for your home, car, or other loans, you may be able to buy it through your lender. Or, you can search for a reputable, trusted insurance company that offers credit insurance products.
Do you need credit insurance?
As you saw in the examples above, credit insurance can be unnecessary if you are covered by other insurance for the same scenario. Life insurance, disability insurance, and property insurance are all very common. Therefore, credit insurance might be an extra expense that you can avoid.
However, you may be self-employed and don’t have disability insurance. That’s when credit disability insurance could be a huge financial lifeline in the event of an injury or illness. Credit life insurance can work as a backup plan for individuals, especially ones who have dependents.
If you don’t want to see your credit score drop significantly, and the price is reasonable, you may want to consider credit insurance. There will always be cases where credit insurance makes sense, it just all depends on the cost and your specific needs.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|