Do You Need Insurance for Your Loan

November 24, 2017
What is loan insurance? It is a type of insurance that will pay off the balance of your loan if something unforeseen happens. Most loan insurance policies will cover your loan payments if you become ill or have an accident. The coverage also applies if you die or become paralyzed. Many policies, but not all, will cover your loans if you lose your job through no fault of your own (if you are laid off, for example).
Do You Need Insurance for Your Loan

Is such insurance necessary?

You may think that the best strategy is to always err on the side of caution. This might be a good idea sometimes, but you should try to make a more informed decision when it comes to loan insurance. This is because you may already be covered for the same things under some of your other insurance policies. Also, variables like the amount of the loan and your current financial situation can play a role in deciding the usefulness of a loan insurance policy.

Types of insurance

  • The first and most common type of loan insurance is mortgage insurance. This is used when a homebuyer has a lower credit score or not enough credit history. It may also be required if you cannot make a large down payment when you purchase the home. The mortgage insurance will not be charged upfront. Rather, it will be included in the monthly payments. Since it is sometimes required for mortgage approval, this type of insurance can be unavoidable. Also, people who want an extra safety net in case they lose their job or become ill might want to consider this kind of insurance.
  • Credit card insurance will cover your monthly payments if you lose your job or become ill and cannot work. Usually, this type of insurance will cover the minimum payments on your balance while you cannot work. If you die, the policy will cover the whole balance of your debt.
  • Disability and life insurance policies may cover these things already. You should take a close look at your current life and disability insurance policies (if you have them). Disability insurance will, for instance, often cover the minimum payments on credit cards if you are out of work, and life insurance may be used by your beneficiaries to pay off your debts.

What if I only need a few hundred dollars?

Often, you will only need to borrow a small amount of money to make it to your next paycheque or to cover your expenses for some unforeseen repair or necessary purchase. In these cases, you should not try to get a loan that requires insurance. Instead, you can opt for an online personal loan. These loans, usually available for about $500-$700 (or even less if you only need a little bit of money), do not require a complete credit check, and the money can often be deposited in your bank account the same day that you apply. The loans are paid off in two or three months, so there is really no need to consider something like loan insurance.