What Is Credit Insurance?
Credit insurance is designed to cover certain financial obligations if you’re unable to pay due to a financial setback like losing your job or becoming disabled. Also known as payment protection insurance, it is typically offered as an extra service by your loan or credit card issuer.1
Some of these programs promise to suspend your loan or credit card payments for a specified period if you can document a hardship that limits your ability to pay—such as having a doctor verify that you’re disabled. However, coverage varies considerably, and will vary, depending on your policy. Credit insurance directly pays the lender or creditor, helping to prevent the loan or balance owed from defaulting and helping to keep your credit score intact.
This type of insurance will typically incur a monthly fee, so it’s important to consider whether the costs are worth it. Alternatively, it may make more sense to put that money toward building an emergency fund that can help you cover your obligations if something goes wrong. Putting the money into a life insurance policy may be a better alternative as well.