Credit Insurance: Is It for You?

The next time you apply for a loan, the lender may ask if you want to buy credit insurance. The lender may even include it in your loan papers. Before you buy it, think about what you are paying - and what you are getting.

Credit insurance protects the lender if you can't make your payments. There are four main types:

• Credit life insurance pays off all or some of your loan if you die.
• Credit disability insurance is also called accident and health insurance. It makes payments on the loan if you become ill or injured and can't work.
• Involuntary unemployment insurance makes your loan payments if you lose your job due to no fault of your own. It pays when your employer lays you off. It usually does not pay if your employer fires you.
• Credit property insurance pays the lender if property you used to secure the loan gets destroyed by theft, accident or a natural disaster.

Each type costs more than it would cost to buy the same amount of insurance from an insurance agent.

Shopping Tips

• Before you sign any loan papers, ask whether the loan includes any charges for credit insurance.
• If you don't want credit insurance, tell the lender.
• If the lender still pressures you to buy credit insurance, try to find another lender.

If a lender tells you that you'll only get the loan if you buy credit insurance from the lender, report the lender to your state attorney general, your state insurance commissioner or the Federal Trade Commission.

You may still want credit insurance. Before deciding to buy it, you should ask:

• How much is the premium?
• Will the lender let you pay monthly instead of financing the entire premium as part of your loan? This would let you save a lot of interest.
• How much lower would your monthly loan payment be without the credit insurance?
• Will the insurance cover the full length of your loan and the full loan amount?
• What does the insurance cover? What doesn't it cover?
• Is there a waiting period before the coverage becomes effective?
• Can you cancel the insurance? If so, what kind of refund can you get?

Borrowing money costs you money. Credit insurance increases what you owe - sometimes by a lot. Be careful only to pay for what you want.

Reviewed August 2008

AlabamaLegalHelp.org offers legal information, not legal advice. This website provides information on your rights and options. However, the site does not apply the law to your personal facts. For legal advice, you should call a lawyer. To apply for free legal services in Alabama, call the Legal Services Alabama office that is closest to where you live OR call toll-free 1-866-456-4995. You can also apply online HERE.