One of the scariest decisions an adult will ever make is putting a mortgage on their first home. These are the most detailed business arrangements that most of us will ever sign, and when you’re unaccustomed to reading contracts — especially contracts with an excessive amount of jargon contained within — it can be a stressful endeavor. Whether or not it’s worth it depends a lot on the contract signed, so it’s better to be safe than sorry. Credit insurance might prevent even more stress.
But what is credit insurance and when is it applicable? Here we go! First things first: many loans you might take out can come with a credit insurance stipulation already attached, mortgages included. When a person’s financial situation changes or the payments become too much of a burden, the credit insurance kicks in.
One thing you should know before signing any agreement is that it’s actually illegal for a creditor to include this type of insurance without specifically telling you. This is according to the Federal Trade Commission (or FTC). Keep that in mind if you ever find that there were a few extra clauses slipped into your agreement — also keep in mind that this is why a mortgage or other big loan requires that you read the contract. This isn’t one of those that you can just skip over.
What types of credit insurance are there? Credit life insurance, credit disability insurance, involuntary unemployment insurance, and credit property insurance.
Credit life insurance is what you buy when you’re worried that you might pass away before you get the opportunity to completely pay off your loan. This is a big concern for homeowners who will likely be paying off a mortgage for over a decade with a fixed plan. You won’t be able to leave that home to your beneficiaries without their willingness to take over the money owed on the loan, so credit life insurance is a way to offset this possibility.
Credit disability insurance kicks in when you become injured or disabled and can no longer make payments on your loan because you can no longer work. Involuntary unemployment is exactly what it sounds like — it kicks in when you are fired or laid off from your job, as long as the reason for your termination was not your fault.
Credit property insurance is similar to homeowners or renters insurance in that it protects against many different types of loss. That means if an arsonist sets fire to your house and you lose everything, the credit property insurance will kick in to help pay what remains of the loan. Just keep in mind you’ll need actual homeowners insurance if you want the property rebuilt, though.
When shopping around for credit insurance, there are plenty of questions you might ask to make the process easier — not the least of which is “how much does the premium cost?” If you’re not in the mood to shop around, you can always ask the creditor directly. Chances are they will have plenty of options for you to choose form, and can provide help choosing the best type of coverage for you.