Don't overlook credit insurance as a way to help you through tough times. When the average person thinks of "insurance," it's usually car insurance or health insurance, as those are the two kinds that come up most often. But what about credit protection insurance? Typically known as payment protection, this kind of insurance is becoming more common due to its inexpensiveness and flexibility. So what is credit protection insurance, exactly? The way it typically works is that if you have credit protection insurance and are then unable to make your monthly credit card payments due to being disabled or losing your job, the insurer will make your minimum payments for you. Furthermore, if you die, your balances will be paid off altogether, to prevent your next of kin from having to assume them. Basically, the idea is to make sure your basic monthly payments are taken care of if your source of income is diminished or lost altogether. If you can't work due to disability, having this kind of insurance will prevent your credit score from being ruined by your inability to pay your monthly bills. Varieties of Credit InsuranceThere are two varieties of credit protection insurance: credit disability and credit life insurance. Disability handles your credit payments to ensure you and your credit score aren't taking a hit if a physical disability prevents your ability to earn money. It will handle anything from credit card bills to personal loans. Credit life insurance handles your outstanding debts if you die, so that your family doesn't have to deal with it and have their own credit scores potentially damaged. The Way Credit Insurance WorksIn general, credit protection insurance comes through banks or loan centers in association with insurance companies. The premiums for the insurance are folded into the loan and added to the outstanding balance. The insurance is optional, of course, but many people are taking advantage of it to protect their credit report and scores. Insurance is sold on each $100 of the balance, usually. The Advantages and Disadvantages of Credit Protection InsuranceThere are pluses and minuses to getting credit protection insurance. On the plus side, there is no physical examination necessary, and you're able to purchase the specific level of coverage that you require to cover your debts. If you only have $1,000 in credit card debts, then you need only buy that much coverage. Also, the premiums are the same, regardless of gender, age, or employment. On the other hand, this insurance is one of the most costly sorts of insurance out there. In addition, there exist limits on how many months the insurance will pay your debts for you, and what kinds of jobs are covered. If you do seasonal work, you cannot claim unemployment during the off-season. It doesn't cover pregnancy or non-essential surgeries, either. It's important to read all the details in your coverage. Should You Get It?How can you decide whether credit protection is right for your needs? Consider your particular requirements based on all your outstanding debts. Look at your disability plan as it exists now -- if you have one. Most companies will pay just a small, fixed percent of your salary for a specific length of time. Will that amount cover your monthly bills? If it won't, then credit protection insurance might be what you need to fill the gap. Then pose these questions to yourself: - Who's going to have to make your payments if you can't? Credit protection insurance prevents your obligations from becoming burdensome on your spouse or children. - Are your debts small enough that you'd be able to make the payments without being insured? - If you became disabled or for some other reason couldn't work, would you still be able to pay your bills each month? - What's in your savings account? Is there enough? It's generally advised that a family of four people have life insurance equal to three years' worth of income. It boils down to this: Credit protection insurance isn't the right choice for every person, but it is good for many people, and if you have any significant loans (house, car, etc.), it's definitely something you should think about to preserve your good credit history. After you've looked at all the facts, if you decide credit protection insurance isn't best for your situation, at least do this: find an alternative plan for taking care of your obligations in the event you can no longer earn money yourself. It's always wise to have a plan in place so that temporary setbacks don't ruin your credit score and your financial well-being.
|
