credit insurance is a type of insurance that protects you against the losses caused by default on your loan repayment or your bad credit score. Usually, it will cover a percentage of your lender’s default, which can be anywhere between 30-55 percent depending on the cost of the policy and other factors like age and income. It does not cover bankruptcy or repossession but rather covers missed payments for certain services such as home mortgages, student loans, car loans etc.
Credit insurance is almost invariably a requirement for most loans. This is normally the case because lenders see the protection they receive from having you covered as a way of reducing their own risk of loss. The amount that can be claimed is usually defined in your loan agreement but will almost always be above your insured percentage.
There are two types of credit insurance: borrower-paid, which is paid by you with your monthly loan payment; and lender-paid, which is paid for by your lender. Borrower-paid insurance is usually more expensive than lender-paid but it also has many benefits because it allows you to pay the premium with your loan payment. This means that you do not need to check your credit score and worry about losing any money. The chances are that if you change your lender and then apply for a new loan, the lender will ask you to pay upfront for insurance. If you don’t have enough money to cover the cost of that insurance and all other loan payments, you may lose your home or be unable to pay off your debts or have to sell.
Another advantage of borrower-paid credit insurance is that it is often included in the loan agreement so that you do not need to sign any extra documents or agree to a new arrangement with your lender. However, these policies are generally not available for loans of more than $10,000.