Credit insurance - do you really need it? (2024)

FAQs

Credit insurance - do you really need it? ›

Remember, credit insurance is voluntary

In short, Credit Insurance is designed to protect your business if a customer does not pay, or goes bust, or a supplier does not deliver, or goes bust.

Credit Card Protection Insurance is a type of coverage that protects your credit card purchases in the event of death, medical disability or unemployment. It can also cover any damaged items that you've purchased with your credit card.

While the benefits of credit life insurance may have some appeal in specific situations, there are better options depending on your overall financial picture. If you have debts beyond a single loan, term life insurance can provide a much larger amount of insurance protection at a better price.

If you have a large amount of debt that you're working to pay down, it may not be a bad idea to have credit card protection insurance. In case of emergency, it would allow you to suspend your credit card payments for a time and prioritize debt that can't be suspended.

Remember, credit insurance is voluntary

Don't let anyone pressure you into buying a policy. Lenders cannot deny you a loan or a line of credit if you don't buy credit insurance from them. But you could be required to show you're already covered or you may have to buy it on your own to get the loan.

Every business can benefit from good credit management. Trade credit insurance is one of the most important tools for that purpose. If you're selling on open account terms to other businesses, then trade credit insurance could bring many benefits.

CPP offers a robust layer of defence against fraudulent activities perpetrated by cybercriminals. With the increasing sophistication of digital fraud schemes, such as identity theft and card cloning, having CPP coverage ensures that you are shielded from financial losses resulting from unauthorised transactions.

Your credit insurance premium is based on a percentage of your sales, conservatively around 0.25 cents on the dollar.

Credit card balance insurance benefits apply to the amount you owed on your card at the date of loss. This means the date of death, unemployment, total disability, or your critical illness diagnosis. Credit card balance insurance benefits won't cover purchases you make on your credit card after the date of loss.

What is a disadvantage to a credit life insurance policy? ›

Credit life insurance is often a guaranteed issue policy, so you won't have to go through a health exam to get it. However, since guaranteed issue policies are a higher-risk type of policy for insurers to provide, they tend to be more expensive than other options if you're in good health.

Credit life insurance is typically offered when you borrow a significant amount money, such as for a mortgage, car loan, or large line of credit. The policy pays off the loan in the event the borrower dies.

The benefit of insuring your credit card balance is that if job loss, total disability, or loss of life occurs, your finances may be protected to a greater degree. Credit card balance protection insurance can help you make payments on your credit card if you, for example, lose your job.

Given that federal law limits credit card fraud liability and that most credit cards offer a “Zero Liability” policy, credit card loss protection insurance doesn't offer any additional benefits. Not only is it unnecessary, it's also a waste of money. Why pay extra for something that's already been provided for you?

This insurance policy pays all or a portion (i.e. monthly payment) of the outstanding debt if an event that is named in the policy occurs (i.e. death, disability or involuntary unemployment of the insured). The insurance company usually pays the money directly to the creditor or lender.

No. A credit score is based on your ability to repay amounts you have borrowed. An insurance score predicts the likelihood of you becoming involved in a future accident or insurance claim — it is based on information gathered from policyholders with similar credit characteristics who have had previous claims with us.

Credit insurance protects your credit rating and reduces financial burden by paying off or reducing your remaining loan balance in the event of your disability or death.

This type of insurance can help to mitigate the potential impacts of bad debt and insolvency, allowing businesses to expand and grow with confidence.

Most insurance companies using credit information will include it as a factor in determining your rate. For example, someone with a relatively high credit score may pay a lower premium than someone with a relatively low credit score.

One of the main benefits of having credit policies in place is that they help to minimise risk for the business. Credit policies establish clear guidelines for approving and managing credit accounts, which can help to reduce the likelihood of a default or delinquency.