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If you have never heard of credit insurance, you are on the way to learn all the details about this type of insurance, in addition to its advantages and how to obtain it.
The purpose of credit insurance is to compensate the insured from the lender - whether a bank, financial institution or real estate finance - for the remaining loan installments on the borrower "insured" in the event that he does not pay three consecutive installments of the loan, in accordance with the loan contract contained in the insurance policy.
What is credit insurance?
A credit insurance policy or coverage of the risk of non-payment of debts by lenders – including banks, credit unions, car dealers and finance companies – serves to cover unpaid loan installments when taking out a loan or opening a credit account.
In some cases of loans, the person pays the insurance premium but if he loses his job and becomes unable to work due to disability, death or any other condition, the insurance protects the lender (usually banks) by making payments on behalf of the insured.
A credit insurance policy is a type of insurance policy purchased by a borrower, which works to pay off one or more existing debts in the event of death, disability or unemployment in rare cases.
Credit risk insurance companies often market credit insurance as a credit card feature, where the monthly cost charges a low percentage of the card's unpaid balance.
What are the types of credit insurance?
Credit Life Insurance - Repays loans or some of them in the event of death.
Credit deficit - pays a limited number of monthly payments.
Credit unemployment – pays a set number of monthly loan payments if a person loses their job.
Credit Property - Protects personal property used to secure a loan if it is lost or damaged during the coverage period.
Credit insurance can be a financial lifesaver in the event of certain disasters, however, many credit insurance policies may be covered within insurance policies of another type as mentioned earlier, and after we have referred to the previous types of credit insurance, we must clarify some basic points about those types:
Credit insurance is an optional credit card feature, and you don't have to buy it.
You should think wisely about whether the other insurance you have is sufficient without buying credit insurance.
Credit insurance can serve as a safety net for credit card owners in difficult economic times.
If you feel that credit insurance will bring you peace of mind, be sure to read the fine details and compare quotes from insurance companies with a life insurance policy if you have one.
Information about credit insurance
A credit premium is often included in the total amount of the loan or credit premium, which means you pay extra interest on it, which means it can add a lot of money over time.
If you choose to buy a credit insurance policy or a debt coverage policy, you need to make sure you understand all the details of the added benefits and conditions, and double-check that you really need this type of insurance.
In addition to the previous points, it should be ensured that if the person falls under a life insurance policy or total or partial disability insurance, those policies may already be inclusive of this part of the coverage.
Banks or lenders probably can't refuse to give people loans if they don't get credit insurance, but you may be required to prove an actual source of income to cover the installments or you may have to buy it yourself to get the loan.
Details about four types of credit insurance
There are four types of credit insurance, each of which pays its benefit in different ways:
Credit Life Insurance
This type of life insurance repays all outstanding loans and debts in the event of death.
Credit Deficit Insurance
Also called accident and health insurance, this type of credit insurance pays a monthly interest directly to the lender equal to the minimum monthly payment of the loan if the loan holder becomes disabled.
Credit Unemployment Insurance
This type of insurance covers loan premiums if the insured becomes involuntarily unemployed, this insurance pays direct monthly interest to the lender equal to the minimum monthly payment of the loan.
You must remain unemployed for a certain number of days before paying the benefit agreed upon by the policy, in some cases, the benefit is retroactive until the first day of unemployment, and in other cases, the benefit does not start until after the waiting period is met.
Credit Card Credit Insurance
For some credit cardholders, credit insurance may be an expensive plus over its benefits, the cardholder must become unable to pay for a certain period of time, and in some cases the entitlement is retroactive until the first day of default.
In other cases, the benefit can only begin after the waiting period has been met, and the common waiting periods for credit deficit insurance vary from 14 to 30 days.
Benefits of Trade Credit Insurance
Brokerage Credit Insurance can help you:
Grow a customer base where potential buyers may be attracted to simple credit terms.
Promote trade giving you confidence to develop and expand your own business.
Supporting you with cash flow allowing you to build strong relationships with your suppliers and employees.
Protect customer relationships through improved connectivity and improved credit terms.
Improve your access to finance and your relationship with your bank.
Meet the risk management requirements of your stakeholders or board of directors and provide peace of mind
Benefits of Credit Insurance for Borrowers
In addition to the benefits of securing credit for loan holders, there are also many benefits for lenders, which are:
Simple documentation and the only source of funding reduce transaction costs and time to get a full funding package.
Availability of the insured amount on the same terms as IFC, including longer periods, and elimination of tail risk associated with other syndicated loan products
Reduce complexity, because IFC is the borrower's sole interface and determines all loan terms