Credit insurance is an insurance policy associated with a specific loan or line of credit, such as a credit card. Credit insurance pays back some or all of any money owed if certain things happen to the borrower, such as death, disability, or unemployment. Typical credit insurance coverage includes credit life, credit disability, involuntary unemployment, and credit property insurance.
- Credit Life Insurance: Effectively pays off the debt you owe on a credit account or mortgage in the event of your death. The payment from the insurance company reflecting the payoff balance of your credit account or loan always goes to the lender who is named as the beneficiary of the policy. You cannot name a spouse, family member, or friend as a beneficiary to a credit life insurance policy.
- Credit Disability Insurance: Helps to secure your favorable credit rating by covering your minimum monthly credit account payment during a period of documented medical disability. Generally, you will not be covered for any additional purchases made using your credit account after the onset of your disability.
- Involuntary Unemployment Insurance: Similar to credit disability insurance, this type of credit insurance makes your minimum monthly credit account during a period of involuntary unemployment, such as a layoff or downsizing.
- Credit Property Insurance: Cancels the debt you owe on items purchased on an insured credit account if the property purchased is destroyed by specifically named disasters, such as an accident, theft, floor, or earthquake.
Since credit insurance is sold without a comprehensive application or screening process, you must make sure that you qualify for the coverage you are purchasing when the policy arrives. Often, the only criteria used by insurance companies to sell you credit insurance is that you have some type of credit, loan, or deposit account. Many people do not qualify for all the types of credit insurance that maybe bundled together for them to purchase. For example, you must typically be gainfully employed to qualify for involuntary unemployment insurance, yet most credit insurance applications do not ask for your employment status when selling this type of credit insurance. With credit life insurance, many insurance companies impose a benefit cutoff at a specific age. Like involuntary unemployment insurance, however, most credit insurance applications or telemarketers do not ask for your age when selling credit life insurance.
Some consumers have difficulty locating the contact information needed to cancel a credit insurance policy because the insurance company is not the original lender, store, bank, or credit card company. Also, it is common for retail store accounts to be handled by a separate finance company unrelated to the original retail store, so you may be unable to recognize the credit account the insurance is covering.
You should be completely clear on how each credit insurance policy works and any special claim procedures or limitation clauses before you decide to purchase and retain a credit insurance policy. A knowledgeable attorney who is familiar with credit insurance policies can explain the complex provisions of such policies in order to help you make the proper decision. Additionally, if you are experiencing difficulty with a credit insurance company or believe they are treating you unfairly, an attorney can explain your options and whether you have a cause of action.