What Is Credit Insurance?
Credit insurance is one of those things that many people aren’t even aware of, but in reality, it can be a life saver for many people who find themselves on the wrong side of bad luck. As the name suggests, it is insurance that protects the buyer against making a payment before a lender agrees to accept an unfinished loan. For instance, if somebody owes you $10,000 and you are also in debt to another person with a total of $20,000, your protection against not being able to make the payments comes from credit insurance. When you buy credit insurance, it is actually an agreement between various financial companies. The agreement helps ensure that both sides of the loan are protected, so that the lenders can survive and make money.

How Does Credit Insurance Work?
The best way to explain how credit insurance works is by using an example. Let’s say you bought a $10,000 boat with a loan from a bank. A month after you buy it, your boat is destroyed by accident. The reason it was destroyed is due to an event that was covered under your insurance policy. If the insurance company agrees that you are within your rights, it will refund all of the money that you have paid towards the loan.

When things seem to be going well for somebody, nobody thinks about bad luck. However, everybody knows that it is inevitable and sometimes bad luck comes out of nowhere. Whether it has something to do with poor financial planning or an unexpected accident, credit insurance is designed to protect against this kind of unforseen event.

What Are the Benefits of Purchasing Credit Insurance?
No matter how well you plan, you never know what can happen to destroy all of your hard work, in a single moment. There is no real difference between borrowing money and purchasing a product on credit. If you are unable to make payments on either, then somebody loses out. Lenders who are not able to make money because you default on your loan will have to pay for the cost of the loan that went unpaid.