What is credit insurance and whether it should be waived

January 17, 2024

Credit insurance is an additional service offered by lenders or banks to protect the borrower from financial risks in case of non-payment of the loan for various reasons. Credit insurance can include several types of protection:

  1. Job Loss Insurance: If you lose your job due to circumstances beyond your control (e.g., being fired without your fault), the insurance may cover your loan payments for a certain period of time.
  2. Sickness or Injury Insurance: If you become temporarily or permanently disabled due to illness or injury, insurance may cover loan payments.
  3. Death Insurance: If the borrower dies, the insurance can cover the remaining loan debt so that it doesn’t burden the family or heirs.

Now let’s consider whether you should forgo credit insurance:

Benefits of credit insurance:

  1. Protection against financial risks: Insurance provides you and your loved ones with protection against unforeseen circumstances that may prevent you from paying back your loan.
  2. Psychological comfort: Having insurance can give you psychological comfort knowing that you are protected from unfavourable events.

Disadvantages of loan insurance:

  1. Additional costs: Credit insurance is an additional expense that increases the overall cost of the loan.
  2. Not Always Required: In most cases, credit insurance is not a requirement for getting a loan. Waiving it can save you money.
  3. Limitations and exclusions: Insurance policies may have limitations and exclusions that restrict their coverage and may not cover all types of events.

So, the decision to take out credit insurance depends on your finances, risk level, personal circumstances and the terms of the loan. Before making a decision, it is important to carefully review the terms and conditions of the insurance and assess whether it is appropriate for your needs and financial situation.