Are Credit Cardholders Insured By Disability Insurance Plans?

Parent, teacher, homeowner, banker, investor, or teenager. It doesn’t matter which one of these categories or more you fall into, there is a very good chance that you know what a credit card is. Heck, you might even own one, owned one in the past, or know someone who has one. Maybe you view these devices as a good thing. Perhaps, you’ve had problems with them in the past. The truth if the matter is that credit cards can go either way. It really depends on how you use them and what you know about them. Use them wisely and these devices can be a modern financial tool, unlike anything you’ll have access to today. Use them carelessly and they’ll ruin your credit faster than you’d imagine.

Whatever the situation is, there is more than a good chance that you don’t know nearly as much about these devices as you think. In fact, did you know that there is such a thing as credit insurance associated with these devices? This is something that a lot of people don’t know, but that’s okay because you’re about to learn everything that you need to know and more.

 

What Is Credit Insurance?

That’s right, credit insurance! This is a term that you are probably not familiar with. Actually, when you hear the term, you should think of four different terms because there are four different types of credit that apply to credit insurance. These terms would be credit life insurance, credit disability insurance, credit unemployment insurance, and credit property insurance. At the end of the day, these are all forms of insurance or credit, although they are completely different and offer different types of coverage and protection.

  • Credit Life Insurance – Credit life insurance is a type of coverage that will pay off specific debts in the event of your death.
  • Credit Disability Insurance – Credit disability insurance covers loan payments if you become disabled and are unable to work for extended periods. Unfortunately, this one might be limited to a certain number of payments or a total amount that is paid out in a single lump sum.
  • Credit Unemployment Insurance – This one covers loan payments if you are laid off from your job. This one also might be limited to a certain number of payments or one lump sum.
  • Credit Property Insurance – This disability policy covers the property used to secure a loan. For instance, if you used your home, boat, or car to secure a loan, this insurance would protect your home, boat, or car. However, the coverage is only applicable if said property is damaged or destroyed during the period of the loan.

 

Any of these above policies can be offered to a single individual or they can be shared jointly. They can protect just you or they can protect you and your spouse. Joint insurance will obviously cost you more because it’s going to cover two individuals, but many providers will offer discounts for having two people on the same policy. Couple these with other policies and you’ll save even more money.

 

Understanding Credit Life And Disability Insurance

In Canada, it is credit life and credit disability insurances that are the most commonly offered form of credit coverage. That being said, these forms of coverage may be referred to differently depending on the loan. For instance, a credit life insurance policy might be referred to as a credit card payment protection insurance if it covers payments. If it covers mortgage payments, it might be referred to as mortgage protection insurance. It can even be referred to as auto loan protection insurance if it was taken out to secure an auto loan.

As you just learned above, credit life insurance was specifically designed to pay off the balance of a particular debt in the event of your debt. Credit disability, on the other hand, along with unemployment credit insurance was specifically designed to cover loan payments in the event that you cannot work for an extended period. Despite what many might believe, credit life insurance is typically a poor choice unless you have a pre-existing medical condition. Term life insurance would just be a much sounder investment. In addition, credit life policies are usually more expensive for the same amount of coverage and do not allow family members to serve as beneficiaries.

However, if you do not qualify for term life insurance, credit life might be your only option, and it might be better than having no protection at all. Even though it is more expensive, it can still serve as a valuable asset in taking the burden of debt off your family.

 

Do You Need Credit Life To Obtain A Loan?

If you want to take out a loan from a lender, you should never be required to invest in credit life insurance upfront. If someone is trying to convince you otherwise, they are lying to you. If a lender tries to quote you the cost of credit insurance in your loan without properly discussing it with you, you should immediately start looking for another provider. In fact, you should probably just go ahead and report them to the Federal Trade Commission because it sounds like they are into some shady dealings.

There are some situations though where a lender might require you to have insurance on specific items that are used to secure a loan. Your car and home would be the perfect examples. However, just because this is the case, it doesn’t mean that you have to get coverage through the same lender. You are more than free to purchase the coverage elsewhere. Another thing to keep in mind is that if you are required to pay for private mortgage insurance when purchasing a home and the down payment is less than 20 percent of the value of the home, you can cancel the coverage once you’ve repaid 22 percent of the balance of the loan. This might not always be the best or most sound option, but it certainly is one that’ll save you some money in the long run.

 

How Exactly Does Credit And Disability Life Insurance Work?

Most of the time, group credit life insurance policies are sold to banks or lenders and even credit unions. These institutions will then offer these policies to you when you obtain a loan. The face value of the policy’s benefit will be directly tied to your outstanding balance, which means it’ll decrease over time as you pay the loan off. In addition to this, credit and disability life insurance premiums are typically structured in two different ways.

This would be the single premium where the policies are fairly costly, as the cost of coverage is added to your outstanding balance, meaning you’ll be required to pay interest. Despite the name of the policy, this is not something that you’ll actually pay a one-time fee on.

The other would be a monthly premium. This works pretty much just like you would think. The policy comes tied with a specific amount per $100 of debt. As the balance changes by increments of $100 each month, your premiums will change as well. Auto loan life and disability insurance payments usually only have a single premium payment structure, whereas credit card payment protection insurance generally costs right around one percent of your previous month’s balance.

 

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