Credit Insurance

What is Credit Insurance?

Credit insurance is a type of insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment.

Credit insurance is marketed most often as a credit card feature, with the monthly cost charging a low percentage of the card's unpaid balance.

How Does Credit Insurance Work?

There are three types of credit insurance, each paying its benefit in different ways:

Credit Life Insurance

This type of life insurance pays off all outstanding loans and debts if you die.

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Credit Disability Insurance

Also called accident and health insurance, this type of credit insurance pays a monthly benefit directly to a lender equal to the loan’s minimum monthly payment if you become disabled.

You must be disabled for a certain amount of time before a benefit is paid. In some situations, the benefit is retroactive to the first day of disability. In other cases, a benefit may begin only after a waiting period is satisfied. Common waiting periods for credit disability insurance are 14 days and 30 days.

Credit Unemployment Insurance

With this type of insurance, if you become involuntarily unemployed, this insurance pays a monthly benefit directly to the lender equal to a loan’s minimum monthly payment.

You must remain unemployed for a certain number of days before a benefit is paid. In some cases, the benefit is retroactive to the first day of unemployment. In other cases, the benefit begins only after the waiting period is satisfied. The common waiting period for credit unemployment insurance is 30 days.