The last time you applied for a credit card, personal loan or any other kind of loan, you may have been offered insurance.
Is it a scam to add fees you’ll never use? There’s no easy answer because it all depends on the insurance in question, your risks and what’s covered. Here’s a brief overview of loan insurance and the factors to consider before taking it out.
What is loan insurance?
Factors to consider when choosing loan insurance
Every insurance policy is different. So the decision to take out loan insurance is a case-by-case one. To help you decide, here’s a list of factors to consider when determining whether or not to take out loan insurance.
Are you covered by other insurance policies?
Before accepting loan insurance, take the time to check with any other insurance plans you may have, such as life insurance or disability insurance that your employer may provide. It’s possible that, depending on all the other factors listed below, your loan insurance will simply double the coverage you already have.
Are you eligible for coverage?
Depending on the type of insurance, there will be different criteria you need to meet to qualify. For example, some insurances cover full credit card balances in the event of death. If you’re over a certain age or if you’ve been diagnosed with a critical illness, you can’t take out this insurance, or your coverage will be limited.
How much will the insurance cost?
When you’re presented with an insurance policy, you may be given a price that seems low. A dollar a day doesn’t seem like much. But if that dollar a day is spread over twenty years, we’re talking about $7300. The first thing to consider is whether you can afford the insurance. The last thing you want is for the cost of insurance to put you into debt or to add to existing debt.
What is the maximum compensation?
Virtually all indemnity policies have a maximum amount, even if, at first glance, the insurance claims to cover the entire cost. Make sure you understand the maximum amount you could receive. Also, pay attention to the conditions that must be met in order to receive this maximum amount.
What are the exclusions and restrictions?
All insurance contracts include restrictions and exclusions. For example, in the case of disability or illness insurance, you may be excluded if the illness occurred before you took out the insurance. In the case of coverage for job loss, the cause of your job loss could be restricted.
Consider the likelihood of these exclusions and restrictions affecting you before accepting loan insurance.
How does compensation payment work?
Even if your claim is accepted, delays can be long. Make sure you have a clear idea of how long you’ll have to wait before your insurance starts making payments or you receive your compensation.
This is an important factor, as a delay of several months could result in significant debt, depending on the nature of your loan.
Who will be affected?
Don’t forget your loved ones. Loan insurance generally protects them. If something happens to you, your loved ones won’t have to worry about paying off your loan balances.
Do the math!
With all these factors in mind, calculate what the insurance will cost you in total versus what you could realistically receive in compensation by assessing the actual chances of the unfortunate event occurring.
If the insurance doesn’t affect your budget too much, covers you well and gives you peace of mind, it’s worth it.
If, on the other hand, insurance puts a big dent in your budget and you’re only covered in extreme cases, you can forget it.
Finally, don’t forget that you can always save by putting money aside in an emergency fund. That way, if nothing happens to you, you’ll have the money in your pocket!