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You may already have disability insurance to help cover a portion of your salary if you experience an illness or injury that leaves you unable to work. But often that’s not enough to pay all of your bills. Credit disability insurance can help take away the stress of your loan payment until you go back to work.
Credit disability insurance pays your loan payments when you can’t work after a disability. Typically, this insurance is offered by your lender when you’re approved for a loan and can apply to different kinds of loans, such as auto loans, personal loans, credit cards, home equity lines of credit and even some mortgages.
Depending on the policy, you may need to be out of work for 14 to 30 days before your benefits start, but most policies are retroactive to the first day of your disability.
Once your policy kicks in, it includes a monthly maximum and coverage maximum for the entire policy. This is how much your policy will pay out for loan payments if you experience a disability and can’t work. For example, your monthly limit might be $500 and your policy limit $25,000.
Credit disability insurance is either added to your loan payment or billed separately, and the cost will depend on which structure you choose. Your premium may be structured as a single or monthly payment.
Credit disability insurance is typically a form of group insurance purchased by your lender to offer all of its borrowers, so you may not have your choice of policy. But there are individual policies available and key factors to consider before you apply for this form of coverage.
There is no medical exam required to get this insurance, but your policy may come with the following conditions:
It depends on the type of policy you’re offered and your circumstances. If the disability policy you have through your employer is enough to cover your bills, including your loans, you may not need this coverage. Otherwise, having your loan payments covered if you suffer a covered illness or injury can keep you from being delinquent on your loans or using your savings or retirement funds to cover your bills.
The amount of the premium can vary widely, as can the maximum coverage limits. Read the policy carefully and do the math to make sure you’re getting the coverage you really need. In some cases, you may be better off purchasing an individual disability insurance policy that offers more flexibility.
Consider different types of credit and disability insurance, each offering coverage in a different situation.
Credit disability insurance can be a low–cost way to ensure your loan payment is covered if a disabling illness or injury keeps you from work. But policies vary in both cost and benefits. If the lender you’re using is offering an inadequate or overly expensive policy, you may be better off opting into a disability insurance policy that offers more flexibility.
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