What is Credit Disability Insurance?

Ken Black

Credit disability insurance is insurance designed specifically to cover all or part of a debt if the borrower becomes disabled to the point where his or her ability to work is totally diminished. Unlike credit life insurance, disability insurance may pay for all or part of the debt, depending on the type of disability.

A credit disability insurance agreement.
A credit disability insurance agreement.

This type of insurance usually goes into effect once an individual is disabled by sickness or injury for 30 days or more. It will cover monthly payments from the time the insured is deemed totally disabled and unable to work. It is important to note that an insured individual does not need to be permanently disabled in order for a policy to go into effect.

Depending on the type of disability, credit disability insurance may pay for all or only a portion of the policyholder's debt.
Depending on the type of disability, credit disability insurance may pay for all or only a portion of the policyholder's debt.

Unlike credit life insurance, credit disability insurance does not pay the entire loan balance if a claim is made. Instead, the policy only makes monthly payments until such time as the insured can make enough of a recovery to resume earning income. If an individual is totally disabled for the life of the loan, the policy would pay the remaining balance in most cases, but only one month at a time.

For those looking to purchase a policy, it is vitally important to take the time to understand what they are buying. Their financial security could depend on it. Some companies may only offer credit disability insurance that has a maximum payment length of 12 to 24 months. While these policies can be much cheaper than full-term policies, they offer less protection. However, for some loans, this may be all the protection a borrower needs.

Credit disability insurance is available for many different types of installment loans. Mortgages are among the most common type to insure, but car loans and others are also popular insurance options. In addition to installment loans, revolving lines of credit can also be insured.

Borrowers who purchase insurance for a credit card should understand that, if the policy does go into effect, it will only pay the minimum payment due each month. While this will keep the account in good standing, it will not pay down the balance very quickly.

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Discussion Comments


I am currently disabled and have credit disability on a second mortgage. Once the insurance starts paying my payments, do I still have to pay the disability premiums?


I have disability insurance on my credit card that I have forgotten about. I have been disabled for six years. How far back can I make a claim on this policy? Mind you, I have nothing in writing for this policy. I called my credit union and they just notify the insurance company.


Does credit disability insurance pay my loan payments if I receive disability income from my employer?

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