Credit insurance is insurance that is sold in conjunction with a loan or line of credit. If a job loss or a disability prevents you from making required loan payments, credit insurance protects the lender. You’re the one who pays for this coverage, though, and it can be costly.
It’s illegal for a lender to include credit insurance in your loan without your knowledge or permission. Before you sign any papers related to a loan or line of credit, ask the lender whether the loan includes any charges for voluntary credit insurance.
Keep in mind that lenders cannot deny you credit for refusing to buy optional credit insurance. The sole exception is private mortgage insurance (PMI)–extra insurance that lenders require from most homebuyers who put down less than 20 percent. If a lender tells you that you will only get a loan or line of credit if you buy the optional credit insurance, report the incident to your state insurance department and find another lender.
