The next time you apply for a mortgage or a personal loan, you may be asked if you want to buy credit insurance or it may already be included in your loan proposal.
Credit insurance protects the loan in case you can not make your payments. Credit insurance is usually optional, which means that you do not have to buy from the lender.
In fact, the Federal Trade Commission (FTC), the nation’s consumer protection agency, says it is against the law for a lender or lender to deceptively include credit insurance (or other optional products) on your loan without your knowledge or authorization.
There are four main varieties of credit insurance
Life insurance over credit (credit life insurance) pays all or part of your loan if you die. Credit disability insurance, also known as health and accident insurance, makes payments on your loan installments if you become sick or injured and can not work.
Involuntary unemployment insurance, also known as involuntary loss insurance, pays your loan fees if you lose your job for reasons unrelated to you and your job performance, such as a layoff or reduction of personal.
The property insurance in credit guarantee (credit property insurance), is one that protects the personal property used to guarantee the loan in the event that the property in guarantee was destroyed for reasons such as theft, accident or natural disaster.
Recommendations to compare and buy
Before deciding on the purchase of a credit insurance offered by a lender, think about your needs, your options and the rates you are going to pay. You can decide that you do not need credit insurance. If you conclude that you do need it, know that credit insurance is an expensive variant of insurance. For example, it may be less expensive and more practical for you to get life insurance instead of credit insurance. Before deciding on the purchase of a credit insurance, you should ask:
- What is the amount of the premium (premium)?
- Will the premium be financed as part of the loan? If so, this will increase the amount of your loan and you will have to pay additional interest and a larger sum for points (in case points are applied to your loan).
- Can you pay it monthly instead of financing the entire premium as part of your loan?
- How much lower would the monthly payments on your loan be without the credit insurance?
- Will the insurance cover the total duration of your loan and the entire amount?
- What are the limits and exclusions for the payment of benefits? That is, detail exactly what is covered and what is not covered.
- Is there a waiting period before the coverage takes effect?
- In case you have a co-borrower, what will the co-borrower have and at what cost?
- Can you cancel the insurance? If so, what type of reimbursement is available?
Before signing any paper related to the loan
Ask the lender if the loan includes any charge for voluntary credit insurance. If you do not want credit insurance, tell the lender. If still, the lender will pressure you to buy the insurance, find another loan entity. Also, carefully review all loan paperwork to make sure it has been prepared correctly.
Loan institutions can not deny you credit if you do not buy an optional credit insurance and if you do not buy it directly from them. If a lender tells you that you will only get the loan if you purchase the optional credit insurance, report it to the state Attorney General, the commissioner or superintendent of insurance of the State in which you reside or to the FTC . Consumers should ask these same questions about the other extra products offered along with a loan, such as buying or automobile clubs, housing or automobile security plans, and debt cancellation products.