It is one of the insurance policies bought by a borrower that pays off one or other debts that exist in the event of a disorder, a death, and unemployment.
Mostly, it is in the market as a credit card attribute where the occasional costs are charged at a minimum percent of the card’s previously owed balances.
How it works
It is an extra service your credit lender offers you when you apply or later on in your loan. Usually, the premiums vary based on the benefit amounts; hence the higher the debt, the more premium will be paid. Your monthly bills cater to the premiums; however, they can be charged once.
If you make a claim, it is essential to point out that the benefits are not paid to you but to the lender.
Types of credit insurance
There are several types of credit insurance, where four are suited to protect consumers, while the fifth is business-oriented. They are:
1. Credit Life insurance
It works in the event of a death; it pays off your balance if you die. it will ensure that your loved ones do not have to pay for your balance
2. Credit Disability Insurance
It works if you become disabled; the coverage pays your minimum payment to your credit card issuer. However, it would help if you were disabled before the insurance kicks in for a specific period.
3. Credit Property insurance
This type protects the properties you have used in securing a loan if that property is lost or damaged, an accident, or any natural disaster.
4. Credit Unemployment insurance
It makes the minimum payments for you if you have lost your job through other faults that you had no part in. It’s vital to note that the benefits are not realized when you are fired or decide to quit. You have to be unemployed for a certain period before your payments are made by the insurance.
5. Trade Credit insurance
It protects the businesses deal in selling goods and services but on credit. It protects them from the risks that may include customers who are not paying their debts due to cases such as insolvency.