Credit Card Insurance

Credit insurance is an optional product that is generally associated with credit cards, personal loans, and equity loans. It is an insurance product that guarantees that the credit payments will be made in the event that the borrower is unable to do so. The price of this insurance is generally added onto the total monthly payment. Credit card insurance and credit insurance in general have 4 distinct categories.

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Credit life insurance. Covers a loan in the event that the borrower dies.

Credit disability insurance. Also called accident and health insurance. Temporarily covers payments on the loan if the borrower becomes injured and unable to work.

Involuntary unemployment insurance. Temporarily covers payments on the loan if the borrower becomes unemployed through a situation that was not his or her fault.

Credit property insurance. Covers personal property used to secure a loan in the event that the property is stolen or damaged.

Problems with Credit Card Insurance

On the surface credit card insurance looks like a good idea. Who wouldn't want to have their bills paid in the event that they were unable to do so? However upon closer examination there is a major flaw with these insurance products.

Quite simply, the insurance is quite expensive in relation to the coverage being received.

A better alternative in the case of credit life (one of the most popular categories of credit insurance) may be to secure a separate life insurance policy. This may offer a more affordable alternative to cover the amount of the debt in case of death. However, even this may be unnecessary. Many people already own a life insurance policy that is already adequate to cover the additional amount of money owed. It is also important to remember that credit Insurance is an optional product. This means that it is illegal to be denied a credit card or a loan for declining the coverage. Less reputable lenders may try to force this product as a part of the loan or card so be prepared.

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About the author:

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.