What Is Payment Protection Insurance?
- Payment protection insurance is good to have in situations when you have no other insurance or carry an inadequate amount. For example, if you apply for a car loan of $25,000 and you only have $10,000 of life insurance available, your heirs may be liable for the other $15,000 or risk the possibility of losing the vehicle, if you should die.
- There are two types of payment protection insurance: credit life insurance and credit disability insurance. Credit life insurance will pay off your loan amount in the event of your death. Credit disability insurance will cover your loan payments up to a specified amount if you are unable to work due to illness or injury.
- Payment protection insurance is typically inexpensive to carry, and the monthly payments can be included as part of your regular loan payments, so there is no need to write an additional check or make a separate transaction. It can be easier to obtain than when purchasing separate life insurance because a medical exam is usually not necessary.
- To calculate how much credit life insurance you may need, add up your existing debts, the amount of final expenses you would need to provide for, such as burial and estate costs, and the amount of income that will need to be replaced. Subtract the amount of any existing life insurance, and the balance is how much additional insurance coverage you will need. For credit disability insurance, add up your monthly expenses and subtract the monthly amount of any current disability insurance you carry. The difference will be the amount of disability coverage still needed.
- If the need to use the payment protection insurance arises, you will typically need to contact the loan representative at the financial institution where you obtained the loan. If the insurance covers an outstanding credit card balance, there should be a toll-free number to call to begin the process. The amount of time until you receive payment will vary depending on the financial institution.