Credit life and disability insurance cover loan payments if a borrower dies or becomes disabled, respectively. According to the Consumer Federation of America, credit insurance is typically highly overpriced relative to other types of policies. Credit insurance is generally calculated as a flat rate per $100 of loan balance. Much better alternatives are to build up emergency reserves to cover small debts (e.g., $1,000 loan) and purchase or increase general life and disability coverage to cover large debts (e.g., $80,000 mortgage or four-figure monthly mortgage payments).
Before you agree to credit life or disability insurance, you need to ask yourself these questions:
* Do you have surviving dependents?
* Could the payments be made easily without the insurance?
* Do you have other savings or insurance that would cover the amount?
* If you don't have other adequate insurance or assets, would the balance on the loan cause financial hardship to dependents?
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