
Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Updated
It’s hard to predict what will happen after you take out a loan. If an accident or unexpected job loss pushes you into defaulting on your payments, it can seriously damage your credit and finances. Credit insurance is designed to prevent the worst-case scenario if you find yourself unable to repay your loan. But it can be expensive and, ultimately, may not be worth the cost.
Credit insurance is a type of insurance that covers your repayments if you can’t make them due to unforeseen circumstances. You might also see lenders refer to it as payment protection or payment protection insurance. It can prevent default and damage to your credit score if you become disabled or unemployed before your loan is fully paid off, and it typically lasts the life of your loan.
Your lender might suggest credit insurance if you have less-than-perfect credit and are looking for a car loan, auto equity loan, mortgage or unsecured personal loan. It’s also often suggested to borrowers ages 65 and older.
No, it’s illegal for a lender to force you to buy credit insurance, according to the Federal Trade Commission (FTC). If a lender is pressuring you to buy it, report them to your state attorney general, state insurance commissioner or the FTC.
There are five common types of credit insurance you might come across, though many lenders bundle them together:
The cost of credit insurance depends on personal details and your loan, including:
The Federal Trade Commission and other consumer watchdog groups warn that credit insurance isn’t always necessary. Ask yourself the following questions to learn whether you or your situation could benefit from credit insurance:
Credit insurance isn’t always a helpful addition to your loan — especially if it makes your loan more expensive than you can afford. When considering this protection, know that:
An untrustworthy lender might try to sneak credit insurance into the terms and conditions of your loan. It’s another reason to carefully read your loan contract before you sign it.
If you notice terms that sound like they’re referring to something like credit insurance, ask your lender. The FTC recommends that you find another provider if yours tries to pressure you into buying credit insurance.
Not sure whether credit insurance is right for you? Consider one of these options instead:
Credit insurance might protect your credit score from the effects of default if you’re unexpectedly unable to pay off your loan. But it’s often more expensive than life or disability insurance, and it can significantly increase the cost of your loan. Before signing up, look into the cost of a traditional insurance plan or setting up an emergency fund that can cover you in the future.
Learn more and compare lenders in our comprehensive guide to personal loans.
Reduce your debt by around 30% after fees — but only if you can stick with the program. Here’s how.
This insurer has four dental plans to choose from — compare costs and features now.
You can pay for car insurance in Bitcoin, even if your insurer doesn’t accept it yet.
Here’s where to get financial help for yourself and your business if you’ve been affected by the storm in February 2021.
The White House announced new changes to PPP loans, helping the smallest businesses and opening access to people with student loan defaults or nonfraudulent felony convictions.
Compare pros and cons of selling on Poshmark vs. Tradesy to help you get the most for your secondhand clothing, shoes and accessories.
President Biden said he supports offering $10,000 in forgiveness for federal loans, plus a few other options. Here’s what to expect.
Get the skincare you need without taking a trip into your doctor’s office.
Get an incentive to meet your existing health and fitness goals with a discounted premium.
A health savings account (HSA) can help you get prepared for your retirement. Learn more.