What is Credit Disability Insurance?
Credit disability insurance is insurance coverage that provides additional safety by helping make payments when one is incapacitated to work for a period of time. A disability can stop you from the income you need to meet monthly loan obligations. However, with credit disability insurance, monthly loan payments may not be a problem.
How Does Credit Disability Insurance Work?
When you go for a personal loan, you are offered a credit disability and or credit life insurance. Credit life insurance is for covering a loan you may have with the bank in case of death. Credit disability insurance, on the other hand, covers loan payment in case you suffer a disability that makes you unable to work. What disability insurance does is to help maintain your good credit score. If you suffer disability and you are not able to work, credit disability insurance will ensure that the loan payment to the lender continues as usual. The insurance provides funds that will cover any loan you owe the lender throughout that period you disabled. To know whether or not you need to secure credit disability insurance, it will depend on two things:
- First, if your family will be left with an obligation of covering your debts if you happen to die
- Secondly, if you do meet the requirement for a more flexible and cost-effective form of coverage like a time life insurance
How Does Credit Disability Insurance Work?
This type of policy is sold to lenders like credit unions or banks who offer customer coverage when they want to obtain a loan. The bank then ties the face value or benefit to your outstanding balance, and it reduces with time as you continue to service the loan.
Why is Credit Disability Insurance Important?
- Credit Protection
Creditors will consider payment history when evaluating your credit risk. This way, they are able to decide whether or not to offer you credit. A history of a one-time payment is an indication that you are a responsible borrower. On the other hand, a poor history payment means that you are a risky borrower.
- Property Protection
We all enter into a financial agreement with the lender in good faith. The lender gives you all the finances you need to purchase your family home or car, trusting that you will make regular payments as required. However, since life is unpredictable, you may become ill or disable. This state may make it difficult for you to continue servicing your loan. That is where credit disability insurance becomes important. It will help cover the debt and you and your family don’t have to lose the property through auction by the lender.
