Posted on February - 16 - 2010
Unfair Lending Practices: Single-premium Credit Insurance Explained
Credit insurance is an option to aid in the payment of mortgage and other loans in the case a borrower is injured, becomes ill or even passes away. The option is often elected by a head of household to cover the possibility they would leave a family with a huge debt bill if an emergency occurred. Lenders often offer to roll this insurance into the cost of the loan, called single-premium credit insurance. Unfortunately, there is not often enough disclosure on the actual costs this would add to a loan.
Adding Single-Premium Insurance
Credit insurance is required on most large loans. On mortgages, for example, it is called mortgage insurance. Even the Federal Housing Administration requires mortgage insurance on most loans. Many lenders will offer to provide the insurance as part of the loan before the loan contract is even signed. In this case, the insurance is not typically for the entire loan. Instead, it is provided for a short period of time, such as 5 years, when the loan will be active.