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Credit Insurance: Why Is It Necessary?Credit insurance is that form of insurance which is related to a particular line of credit or loan and compensates or repays a portion or the total amount owed in the event of disability, death or joblessness of the borrower. Similar to any other form of insurance policy, the insurer charges a cost on a monthly basis and it is known as credit insurance premium.
Obtaining credit insurance is not compulsory and if the lender incorporates it in the loan without taking the consent of the borrower, then it would be considered as unlawful. The borrower has the complete authority to tell "no" to credit insurance. Nevertheless, it is beneficial to insure the payments of secured loans at all times, since you may land up losing your property when you become a defaulter on your secured loan payments.
What Is The Necessity of Credit Insurance?
Secured loans usually need credit insurance. The reason behind this is that the repayment term of these loans is typically extensive. It may range from 5 years to 30 years. Within this extensive time period, anything unpredicted, unexpected, unintentional, and unlucky may occur. Therefore, to stay secured, borrowers selecting secured loans must opt for credit insurance.
The following forms of credit insurance are available for secured loans:
Credit disability insurance: This insurance offers coverage for illness, accidents and other injuries that might occur within the duration of a secured loan.
Credit life insurance: If the borrower expires, this insurance would compensate for the total or a significant part of the outstanding loan amount of the borrower.
Credit property insurance: This offers the most suitable insurance coverage for secured loans. It shields the property which is utilized as collateral for getting a loan if it is damaged or lost.
Involuntary unemployment insurance: This would compensate for your secured loan payments if you become unemployed or your business goes bad which would make ti hard to repay the debt.
There is an old saying that prevention is better than cure. This is relevant for secured loans also. Therefore, you should buy credit insurance and hedge your bets.
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