Financial stability is a goal that most of us aim to achieve. However, life is unpredictable, and unexpected events, such as job loss, disability, or illness, can disrupt even the best-laid financial plans. This is where debt cancellation insurance can step in to provide a safety net.
Find out what debt cancellation insurance is and why it can be a valuable addition to your financial toolkit, especially if you’re a member of a credit union.
What Is Debt Cancellation Insurance?
Debt cancellation insurance, also called credit insurance or loan protection insurance, helps protect borrowers in the event of unforeseen circumstances that prevent them from repaying their loans, such as unemployment, disability, critical illness, or death.
This debt cancellation agreement can cover various types of loans, including personal loans, auto loans, mortgages, and credit cards.
When an individual takes out a loan or opens a credit account, they may have the option to purchase debt cancellation insurance as an added protection. The cost of this insurance is usually based on a percentage of the outstanding loan balance or a fixed premium, and it can be paid as a one-time fee or included in the monthly loan payments.
If the borrower faces a qualifying life event that hinders their ability to make payments, the insurance policy kicks in. Depending on the specific terms of the policy, it can cover the outstanding debt balance or make monthly payments on behalf of the borrower for a predetermined period.
Key Benefits Of Debt Cancellation Insurance
Flexible coverage
Debt cancellation insurance typically offers different coverage levels to suit your needs. You can choose the coverage that aligns with your financial situation and the type of loan you have.
Loan continuation
Debt cancellation insurance helps ensure that your loan continues to be paid even if you can’t make the payments yourself. This can be particularly helpful if you have dependents who rely on your financial contributions.
Peace of mind
Knowing that you have a safety net in place can provide peace of mind. This sense of security can help reduce financial stress, allowing you to focus on your recovery or job search without worrying about your loan payments.
Protection in times of uncertainty
You might find yourself in an unexpected financial situation. Debt cancellation insurance steps in to cover your loan payments if you face job loss, disability, or illness, ensuring you don’t fall into arrears and damage your credit score.
Some Drawbacks Of Debt Cancellation Insurance
Cost
Debt cancellation insurance adds an extra cost to your loan payments. Premiums can vary, but they can make your loans more expensive over time. It’s essential to understand the total cost of the insurance and compare it to the potential benefits.
Coverage gaps
There can be situations where you think you are protected, but your claim is denied due to technicalities or policy exclusions. It’s important to thoroughly review the terms and conditions of the policy to understand when coverage applies and when it doesn’t.
Limited coverage
Debt cancellation insurance typically has specific terms and conditions that define when coverage applies. Common limitations may include a waiting period before benefits kick in, pre-existing condition exclusions, and coverage limits.
Limited duration and qualification
Debt cancellation insurance is generally designed to provide short-term assistance during challenging periods, but it doesn’t offer long-term financial security. It won’t help with paying off the entire loan if you experience a lengthy period of financial hardship. Qualifying events also may be different with different plans. If your situation doesn’t align with predefined events, you may not be eligible for coverage.
Not a substitute for responsible financial planning
While debt cancellation insurance can be a safety net, it’s not a substitute for responsible financial planning, including building an emergency fund and managing your budget wisely.
How Debt Cancellation Insurance Works
The specifics of how your debt cancellation agreement works may vary depending on the insurance provider and the terms of the policy, but here’s a general idea:
- Claim process: If you experience a qualifying event (such as job loss, disability, or illness), you can file a claim with the insurance provider. They will review your claim and, if approved, start making your loan payments on your behalf.
- Coverage limits: Debt cancellation insurance may have coverage limits, so it’s essential to understand what is and isn’t covered by your policy.
- Eligibility: Most policies require you to meet certain eligibility criteria, such as being actively employed at the time of application.
- Premiums: You’ll pay a premium for the insurance, which is typically added to your monthly loan payments. The cost may vary based on factors such as the type of loan and the level of coverage you choose.
- Waiting period: Many policies have a waiting period before benefits kick in, so be sure to understand this aspect of your coverage.
Protect Yourself At Arizona Central Credit Union
Debt cancellation insurance is a valuable tool to help protect you in uncertain times. Whether you’re facing a challenging financial situation or simply want peace of mind, this type of insurance can provide a safety net to ensure your loans are paid when you can’t.
Arizona Central Credit Union is committed to your financial well-being. We offer competitive rates and prioritize personalized service. All this comes together with our MEMBER’S CHOICE Borrower Security program.
Benefits of MEMBER’S CHOICE Borrower Security include:
- Convenient (the fee is included right in your loan payment)
- Fast and easy enrollment (immediate for eligible borrowers)
- Protection of your credit rating and collateral
- Simple eligibility requirements
You can also explore our wide variety of checking and savings account options. If you have any questions about opening an account, contact us online or call (866) 264-6421.
