If you’ve ever applied for a loan, there’s a good chance you’ve been asked about adding credit life or credit disability insurance to your loan. Your response? “No thanks.” In some cases, you don’t need it. But in some cases, it’s worth a second look.
Before you can decide if it’s right for you, it’s important to understand what this coverage is and how it could benefit you.
If you pass away and your claim is payable, credit life insurance will pay off or greatly reduce your eligible loan balance. This leaves less financial stress for survivors who may be left having to figure out how to pay off your loan balance.
With Credit Disability Insurance, if you’re disabled from work due to injury or illness, your monthly loan payments will be made, up to the monthly benefit maximum, until you’re no longer disabled, your loan is paid, or reach the policy maximum.
“That’ll never happen to me.” Perhaps not, but over the past year, we’ve seen a huge uptick in members who have been injured on the job and who have contracted COVID-19, leaving them unable to work for some time. Many who opted in for insurance on their loan benefited from the protection during the time they were unable to work. Sadly, others did not opt-in and were left with just one more financial stress to navigate.
What about worker’s compensation, that should cover you, right? You’re 66% right. Keep in mind that worker’s comp only pays a portion of your paycheck. Could you cover your living expenses and pay all of your bills on just 66% of your income? You may also have short term and long-term disability coverage, but keep in mind that the waiting periods and percentages paid are similar to worker’s comp.
We’ve often seen members who have been told that these are required of their loan from other financial institutions. It’s important that know that you’re never required to purchase credit life insurance to obtain a loan. If a lender ever tells you that this extra protection is required or tries to include the cost of credit insurance in your loan without properly disclosing it to you, you should report the company to the Federal Trade Commission.
When opening a new loan, reviewing insurance products offered in conjunction with the loan you should always ask yourself “What does this product do for me?” If you have a loan and opted to not receive coverage, it may not be too late to add it. It’s only too late when you need it and don’t have it. Often you can add coverage after the loan is closed. If you still have questions about these options or if it’s right for you reach out to us at the credit union. We’ll walk you through the benefits and help determine if it’s right for you.