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Consumer credit insurance pays a consumer’s debt if they are unable to pay due to job loss, illness, or disability. It benefits the creditor and can help consumers avoid debt collections and bankruptcy. Mortgage insurance can also help borrowers secure a mortgage.
Consumer credit insurance is a type of insurance that a consumer can purchase to insure against their inability to pay a debt. Unlike other types of insurance, consumer credit insurance does not pay the person who buys it; It mainly benefits the company that has extended credit to the consumer. In the event a consumer defaults on a loan, defaults on a credit card bill, or pays off some other type of debt, consumer credit insurance pays the money the consumer owes. A consumer typically purchases credit insurance to provide coverage in the event they lose their job, become seriously ill, or suffer a disabling injury.
When creditors lend money to consumers, they take risks. In the event that the consumer does not repay the loan or credit that he has received, the creditor suffers a loss. If a person with consumer credit insurance is unable to pay a debt due to job loss, illness, disability, or other insured circumstance, the insurance pays the debt, or a portion of it, and can help keep the consumer out of debt. Collections and Bankruptcy Court. However, whether or not consumer credit insurance helps a person avoid collections depends on the type of insurance.
A common type of consumer credit insurance is known as mortgage insurance. A consumer buys this type of insurance to protect the mortgage lender from some of their losses in the event of a default. Although it may seem that this type of insurance does not provide much benefit to a borrower, there is a great advantage to securing this type of insurance: in many cases, a lender may be more willing to make a mortgage when the borrower obtains mortgage insurance. Unfortunately, however, mortgage insurance generally does not protect the borrower from foreclosure.
In addition to mortgage insurance, there are other types of consumer credit insurance that a person can purchase. For example, you can buy insurance for various types of loans, installment agreements, or credit card accounts. This type of consumer credit insurance generally pays the lender if the account holder is unable to do so. For example, if a consumer loses their job, becomes disabled, or suffers an illness or injury that makes them unable to work, this type of insurance will generally pay the lender in full or cover any payments the consumer misses. Often this will help a consumer avoid credit default and bankruptcy filings.
Smart Asset.
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