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Credit insurance is the coverage that insures the repayment of all kinds of loans or debts of the consumer such as a car loan, Bank loan, Home Loan, etc. in the case of Default. The consumer might not be able to pay the debt because of death, illness, disability, due to loss of the job or any other eventuality. Credit Insurance policies can also be cover-specific such as credit Life Insurance, credit disability insurance or credit accident insurance. There are other categories of credit insurance such as trade credit insurance, loan insurance, business insurance.
Credit insurance usually covers the payments for a limited period of time (12 months), in case of death it may cover the entire credit amount (loan outstanding). It can cover the entire monthly payments, or in case of credit card dues, credit card insurance generally covers the minimum monthly payment. After the specified period, the debt-holder must find a way to repay the remaining amount. There are some policies that do pay the debt in full if the policyholder is unable to return to work or is terminally ill. Generally, the period of the insurance policy is enough for the policyholder to find other means to service their debts. Most of the credit issuing companies sell credit insurance at the same time when they issue the debt or loan to the customer in order to safeguard their money.
Credit life insurance is a type of life insurance policy structured to repay the standing dues or debts of the policyholder in case of their death. The Face Value of the credit life insurance plan reduces proportionately with the outstanding debt amount as the loan is repaid over the specified period or till it is completely repaid as in case of some policies. This credit insurance policy is designed to protect the dependents of the policyholder. Also, such policies are important for the issuer of the loan as they do not want any defaults that may negatively impact their business. It is thus, important to read and understand the fine print of the loan contract to assess if credit life insurance policy is needed or not.
Credit disability insurance takes care of the policyholder's outstanding dues during the time they are unable to work - unemployment or illness. The insurance policy covers the payments for a specified period of time i.e. the time till the policyholder gets well or finds a new job. Credit disability insurance is typically more expensive than the normal credit life insurance policy.
Loan insurance is a form of credit insurance which offers payment protection in case of defaults of EMIs of the loan. The policyholder may be diagnosed with some disease, meets an accident or might have lost their job. Loan insurance covers the payments till the policyholder recovers from their difficult period. Such insurance can be used to cover home loans, car loans or personal loans as well.
Surely you know life is unpredictable. Credit insurance helps you and your family to be secure during the crisis of unemployment or critical illness. Such cover reduces the burden on your family as well. In case of untimely death, your loved ones are spared from the trauma of repaying the loan debts.
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Consider the following things before you buy a credit insurance policy:
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