Should You Buy Credit Insurance?

a man hand using calculator and laptop for calculating financea man hand using calculator and laptop for calculating finance

If you have a credit card, you may have been asked if you would like to purchase credit insurance for it. Sometimes, credit insurance is beneficial. It can help you avoid debt collectors and creditors filing a lawsuit against you and potentially garnishing your wages or obtaining a judgment against you to levy your bank account or place a lien on your property.

Other times though, credit insurance is just an unnecessary cost that may actually hurt you more than it helps. If a creditor has asked you if you want to purchase credit insurance, below are some important factors to consider before you make a decision.

What Is Credit Insurance?

Credit insurance, also sometimes known as payment protection insurance, is a type of insurance that is attached to a certain credit card account or loan. The insurance provides protection in the event that you can no longer make payments or pay the outstanding balance. Understanding the basics of credit insurance can help you make an informed decision about whether or not you want to purchase it. Still, there are important things you should take into consideration before making your decision.

Understand the Different Types of Credit Insurance

If a creditor calls you to ask about credit insurance and whether you are interested, they are likely working with an insurance company that is offering the insurance. Before you accept or decline the offer, you should know what type of insurance you will be purchasing. Different insurance companies offer different types of credit insurance that offer different types of protection.

The four most common types of credit insurance are as follows:

  • Credit life insurance: This type of insurance will pay off the debt remaining on an account in case you pass away. It can help alleviate your family from the debt, but the creditor is named as the beneficiary on the credit insurance policy. Sometimes, borrowers already have life insurance or other types of protection set up for this unforeseen event, so it is important to consider if you do and if you need additional coverage.
  • Credit disability insurance: As its name suggests, this type of credit insurance will cover your minimum monthly payment in case you suffer a physical disability and can no longer make the payments. The time period covered under these policies is usually quite restrictive and if you made any purchases after suffering the disability, those payments will likely not be covered.
  • Involuntary unemployment credit insurance: This type of insurance will also cover your minimum monthly payment only in the event that you are involuntarily unemployed. Quitting your job is voluntary, but if you are suddenly laid off or your company downsizes, this insurance can help. Like disability insurance, any purchases you make after losing your job are not covered under this type of insurance.
  • Property insurance: This type of insurance is rarely seen on credit card accounts but is more commonly used for personal loans. This insurance protects any property you may have used to secure a loan. It is essential to understand the terms of this type of insurance. If you have personal contents insurance or home insurance, your property is likely already secured, making this insurance unnecessary.

Understand Credit Insurance Promotion

Credit card companies will promote their credit insurance by asking you at the time of approving your credit application whether you want it. Additionally, they may also use a telemarketing company to call you and ask if you want this type of insurance after you have already received your card. It is essential to understand that if you say ‘yes’ to either company on the phone, you will be signed up for credit insurance. This agreement does not need to be in writing to be valid and does not require your signature. So, just like with anything else a credit card company offers you, it is essential that you understand what they are asking and what you are agreeing to.

Ask Questions

Asking the right questions can greatly protect you when deciding whether or not to purchase credit insurance.

The two most important questions to ask are as follows:

  • What is included in the policy? It is crucial that you understand what is included in the policy so you will know what you are covered for. For example, if you already have a life insurance policy, you may not need credit life insurance. If you do not ask this question and the only coverage the insurance provides is credit life insurance, you will pay for something you do not need.
  • Are there waiting periods? You may want to take out insurance due to your own personal situation. For example, you may know that you are about to be laid off from your job, so think that purchasing involuntary unemployment insurance is a good idea. However, if the insurance has a waiting period and that period will not expire before you lose your job, you may not have access to the protection you thought you did. Many types of credit insurance have a waiting period, and it is crucial that you understand what that is.
  • Can I cancel at any time? The majority of credit insurance offers begin with a free trial and often, you must decide before the free trial is over. If you do not in many cases, you cannot cancel it at a later date, so it is important to know the restrictions that are important to you.

Also make sure that you understand everything that will be required of you before taking out the insurance. If you cannot understand the policy no matter how much it is explained to you, or if the representative you speak to is unable to answer your questions, do not take it.

Call Our Fort Lauderdale Debt Defense Lawyers if a Creditor Has Taken Action

Credit insurance can sometimes prevent a creditor or debt collector from taking legal action against you to collect a debt. Unfortunately, this is not always the case. If a debt collector has threatened to take legal action against you to recover their debt, our Florida debt defense lawyers are here to help. At Loan Lawyers, we have successfully defended thousands of borrowers in debt collection lawsuits and we want to help you, too. Call us today at (954) 807-1361 or fill out our online form to schedule a free consultation and to learn more about how we can help.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation and find out more about our money back guarantee on credit card debt buyer lawsuits, and how we may be able to help you.