Credit Insurance Information

The next time you apply for any mortgage or personal loan, you might be asked if you want to buy credit insurance, or it might be included in your loan proposal. Credit insurance protects the loan on the chance that you can’t make your payments. Credit insurance usually is optional, which means you don’t have to purchase it from the lender. In fact, the Federal Trade Commission, The nation’s consumer protection agency, says it’s against the law for a lender to deceptively include credit insurance in your loan without your knowledge or permission.

There are four varieties of credit insurance: Credit life insurance pays off all or some of your loan if you die. Credit disability insurance, also known as accident and health insurance, makes payments on the loan if you become ill or injured and can’t work. Involuntary unemployment insurance, also known as involuntary loss of income, makes your loan payments if you lose your job due to No fault of your own, such as a layoff. Credit property insurance protects personal property used to secure the loan if destroyed by events like theft, accident or natural disasters.

Before deciding to buy credit insurance from a lender, think about your needs, your options, and the rates that you're going to pay. You may decide you don't need credit insurance. If you do, credit insurance can be an expensive type of insurance. For example, it may be less expensive and more practical for you to get life insurance than credit insurance.

Before deciding to buy credit insurance, consider the following:
Before you sign any loan papers, ask the lender whether the loan includes any charges for voluntary credit insurance. If you don't want credit insurance, tell the lender. If the lender still pressures you to buy insurance, find another lender.

Review your loan papers carefully to be sure they have been drawn up correctly. Lenders can't deny you credit if you don't buy optional credit insurance.

If a lender tells you that you'll only get financed if you buy the optional credit insurance, report that lender to your state attorney general, your state insurance commissioner, or the FTC. Before you purchase the credit insurance get a quote from your homeowners insurance, it may be cheaper.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace, and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free 1-877-FTC-HELP.

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