Personal loans can be used to cover a variety of expenses, including debt consolidation, medical bills, and even major life events such as adoption or a wedding. However, before you apply, you should be aware that monthly payments may not be the only cost. Some borrowers also purchase personal loan insurance to protect themselves from default if they are unable to make timely payments. Personal loan insurance, on the other hand, can be costly and, in some cases, unnecessary.


What are personal loans credit insurance?

Most loan protection insurance policies cover specific events for a limited time, relieving you of making payments for a set period, usually between 12 and 24 months. The Federal Trade Commission defines four types of loan protection insurance, each of which covers a different set of circumstances.


1. Credit life insurance: If you die before repaying all of your loans, this policy will pay off some or all of the remaining balance.


2. Credit disability insurance: This is also known as accident and health insurance, and it provides you with temporary relief from making payments if you are unable to work due to illness.


3. Involuntary unemployment insurance: This is also known as accident and health insurance, and it provides you with temporary relief from making payments if you are unable to work due to illness.


4. Credit property insurance: When personal property is used as loan collateral, this insurance protects the property rather than the loan payments.


Who needs credit insurance?

Personal loan insurance is usually not worth it. The additional costs can increase the cost of your loan and put you at risk of default. Furthermore, if you have life or disability insurance, it is probably less expensive than investing in credit insurance. Personal loan insurance, on the other hand, may make sense in some cases. It can be a good option if you have a loan that you can't defer, or if you're worried about debt because of a medical condition, job loss, or death.

Pros and cons of loan protection

The obvious benefit of loan insurance is that it allows you to avoid making late payments or defaulting due to circumstances beyond your control. Even one late payment can harm your credit score, and the lower it falls, the more difficult it will be to obtain future loans or credit. As with most types of insurance, paying a small amount of money upfront could save you a lot of money in the long run.

However, as with other types of insurance, you may never need to use your loan protection policy. It's also critical to understand the specifics of your policy to ensure you're adequately covered, as all policies contain exclusions.


Factors to consider

Before you take the plunge and move forward with personal loans insurance, think about these factors:


1. Your budget: Because loan insurance can increase the overall cost of your loan, look at your budget. Make sure you can afford it.


2. Your reason for wanting it: Loan insurance isn’t required. Ask yourself why it’s useful in your unique situation.


3. Other types of insurance policies you have: If you have life insurance, for example, credit insurance may not help you. This is particularly true if your reasoning behind it is to avoid debt after death.


4. Various offers: Personal loans insurance varies from company to company. Do your research and compare the premium rates and terms of the options at your disposal.


5. The fine print: Read the fine print of any policies you’re considering. Find out what will happen in the event you default on your loan.


Next steps

Personal loan insurance isn't necessarily a scam, but it may have limitations in terms of how useful it can be. At the end of the day, you must conduct a cost-benefit analysis to ensure that the additional policy expense is worth the coverage you receive. Rather than skimming over your policy, pay attention to the details on exclusions and the claims process to get the most out of your loan insurance when you need it the most.


Check Your Free Credit Score Now

Your Data Is Safe With Us.

Keeping your data safe and secure is a top priority for us and we are committed to it. We have implemented  256 bit Secure Encryption SSL to ensure data security and it is validated by Go Daddy Secure Certificate Authority.