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Credit insurance scores poorly…

Many kinds of credit lines and installment loans offer credit insurance. These products are designed to “protect” an individual’s credit score by covering installment payments in case of certain qualifying situations.

Sadly these tend to be overpriced according to recent research. A study covering 2004 through 2013 demonstrated that 44.4 cents in benefits were paid for each dollar spent on such insurance policies. (By comparison, typical health plans offer 84.1 cents in benefits for each dollar spent.

So if the goal is to protect yourself in case you get sick or injured, you might be better off finding other forms of personal protection. (Be sure to check with your financial advisor for options.)

Also bear in mind, having such credit insurance is not a requirement for receiving a loan. It is always an option.

So when you are getting a line of credit, a car loan, or a store credit card, remember than this “insurance” may have a low payment but can be an expensive option when it comes to potential payout.

Also it is important to understand that options are limited. There’s virtually zero competition. Under normal circumstances you’ll be offered insurance from one provider… that’s it. There’s zero choice.

So what are your alternatives to Credit Insurance?

Term life insurance is a great way to protect beneficiaries. In the case of your death, your beneficiaries can leverage the funds to pay off your debts. Of course a life insurance benefit can cover all financial needs whereas credit insurance is limited to only covering that specific loan.

And in case you are injured, disability insurance can be beneficial. As with term life insurance, disability insurance is far more flexible than standard credit insurance.