You may not really know what credit insurance is but there is a good chance that you have been offered it in the past if you are a credit card holder. Sometimes the offer is made when you apply for a credit card and sometimes it is offered to you through a mailer that comes with your credit card statement. Some people are even paying for credit insurance on their monthly bills and don’t realize it. Credit insurance is something that some people see as good and others see as bad but either way you should understand the drawbacks and limitations completely since it’s going to be offered to you as a credit card holder.
What Is Credit Insurance?
Types of Credit Insurance
Although there are many variations in the credit insurance that may be offered to you, there are three different types of credit insurance that are most common:
- Life Insurance. This credit insurance pays off some or all of your debt in the event of your death so that your loved ones don’t have to deal with it.
- Disability Insurance. This credit insurance pays off a portion of your monthly payment in the event that you become suddenly disabled due to an accident or illness.
- Unemployment Insurance. This credit insurance pays off some or all of you monthly payment if you become unexpectedly unemployed.
Limitations of Credit Insurance
The most important thing that the card holder needs to be aware of is that there are limitations on all of the credit insurance types that may be obtained. There are limitations in regards to the amount that will be paid off so sometimes there remains outstanding debt even after the insurance company has paid its part. And there are limitations on the times that the insurance can be used; for example, your unemployment insurance may come with specific terms related to the types of unemployment situations that it will cover.
Additional Drawbacks of Credit Insurance
The credit card consumer should also be aware that there are additional drawbacks to credit insurance besides the limitations of the insurance. The most important drawback is that you’re going to be paying a monthly fee for this insurance coverage. This means that the amount you pay on your minimum monthly balance will either be higher than if you didn’t have insurance or that the amount will go towards the insurance and it will take longer to pay off the debt.
Should You Get Credit Insurance?
Some people find that credit insurance is a positive thing for them despite the limitations and drawbacks it comes with. People who feel that they are at serious risk of any of the things that could trigger the insurance get peace of mind from having the insurance. Additionally, some credit insurance is based on the amount of debt outstanding so if you pay off your balances in full each month then you may find it costs little to have the added security.
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