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For many Americans, the holiday shopping season officially begins on "Black Friday," the day after Thanksgiving. At a time when many
consumers are worried about paying for even their most basic needs, it's tempting to use credit to buy holiday presents. Many credit card
companies know that, and are using the season to offer credit insurance for your account.
The Mississippi Insurance Department (MID) offers advice on this page to help you make a decision about your needs before purchasing credit insurance.
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Credit insurance is insurance that is sold in conjunction with a credit obligation or loan. If you lose your job or become unable to work due to
some type of disability -- and these events prevent you from making the necessary loan payments -- credit insurance protects the lender from
your inability to repay the loan by making payments to the lender on your behalf.
There are four main types of credit insurance:
The are a number of factors - including the amount of the loan or debt, the type of credit and the type of policy - that might impact the cost of a credit
insurance policy. Companies will generally charge premiums by either using a single premium method or a monthly outstanding balance method.
The insurance premium is calculated at the time of the loan, and often added to the amount of the loan. This means that the borrower is responsible for the entire premium at the time the policy is purchased. In turn, the monthly loan payment would increase because the original loan amount now includes both the original loan amount and the insurance premium.
This method is generally used for credit cards, revolving home equity loans or similar debts. There are two subcategories to consider for this type of charge:
The payment of the insurance claim will vary, depending on the situation:
It is against the law for a lender to deceptively include credit insurance in your loan without your knowledge or permission. Before you sign any loan papers,
ask the lender whether the loan includes any charges for voluntary credit insurance.
With the exception of private mortgage insurance (PMI), lenders cannot deny you credit if you do not buy optional credit insurance. PMI is extra insurance that
lenders require from most homebuyers with less than a 20 percent down payment on the purchase of a home. If a lender tells you that you will only get the loan if you
buy the optional credit insurance, report the lender to the MID and find another lender.
Before deciding to buy credit insurance from a lender, think about your needs, your options and the rates you are able to pay. Consider these questions before
signing the application:
Before purchasing credit insurance, check to see what a traditional term life insurance or disability insurance policy would cost. You might decide it is less
expensive to purchase traditional life insurance or disability insurance rather than purchasing credit insurance.
Watch for aggressive sales tactics and make sure you understand all of the documents you sign. If you have any questions about the coverage or the company
selling the coverage, contact the Mississippi Insurance Department. Please see the Request Assistance Page for information on how to contact us.