Insurance Payment Protection
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An insurance payment protection policy can help an individual protect his credit rating in case of job loss or a serious accident or illness. Depending on the coverage, such a policy may also pay off certain types of indebtedness in case of death. It seems that people are very interested in these types of policies, perhaps because of the current economic situation. So many employees are fearful about losing their jobs that it's only natural for them to look for ways to handle indebtedness. People are worried that a loss of income will result in bills not getting paid and that this will have an adverse affect on their credit rating. Scripture says: "'Ye shall make you no idols nor graven image, neither rear you up a standing image, neither shall ye set up any image of stone in your land, to bow down unto it: for I am the Lord your God'" (Leviticus 26:1). But how many conscientious people worship at the altar of the almighty credit score? Of course, they don't mean for the score to be an idol, but too often that is what it becomes. A person is so afraid of a drop in the credit rating that he sometimes makes poor decisions just to keep that from happening. But fear isn't a good reason for purchasing insurance payment protection coverage.
There are three major credit-reporting companies that keep track of consumers' credit histories. Each one has its own unique formula for coming up with a number that represents an individual's credit-worthiness the ability to pay back loans. The formulas include such factors as income, lines of credit, and payment history. A person's score often determines whether or not she is eligible for the best interest rates when purchasing an automobile or a house. This number may determine whether or not someone is able to get a cell phone, lease an apartment, or even be able to buy auto insurance. No wonder it's become so important to consumers. To protect it, many people will rush to purchase insurance payment protection coverage without taking the time to consider the wisdom of that decision. Credit card companies repeatedly urge cardholders to sign up for coverage. Here's how it works: the cardholder pays a small monthly fee per $100 owed on the account. With disability coverage, the monthly payments are made on the account. If the cardholder has life coverage, the balance of the loan is paid off upon the cardholder's death.
Many people find the small fee worth the peace of mind of knowing that insurance payment protection coverage will take care of their indebtedness in the event of disability or death. However, these individuals should first review their current disability and life insurance policies before buying any additional coverage. Those wage-earners who don't have adequate disability coverage need to make this a financial priority. It's better to have a policy that provides flexibility with the payouts rather than one that directs the payments to a particular creditor. The same can be said for life insurance. Term policies are relatively inexpensive. Upon the policyholder's death, the beneficiary (often the surviving spouse) can use the proceeds to pay off the household debt. Having disability and life coverage in place first allows more flexibility for the beneficiary than is provided by insurance payment protection.
Though it might be nice to know that a $5,000 account balance will be paid, it's much better for the beneficiary to be able to choose what to do with that $5,000. Other needs may be more pressing than paying off an account balance. Of course, term policies are usually in amounts much larger than $5,000 so the beneficiary will be able to pay off the balance if she chooses to do so or she may pay off other balances instead. The choice is hers to make. Of course, the fees for a life and/or disability insurance payment protection are small. But that's not really the point. Instead of acting in fear, this is the time for individuals to take a good look at their financial management and make needed changes. Financially responsible people first need to be sure that the household's primary wage-earner has adequate disability and life insurance coverage. An emergency fund needs to be kept in an interest-bearing account that allows quick and easy access to the money. A money market fund is a good choice for an emergency fund; a certificate of deposit is not because penalties will have to be paid if the money is taken out before its term ends. Outstanding account balances need to be made current and debt should be reduced as quickly as possible. This is the time to act, not react.
An individual may decide that an insurance payment protection plan is a good option given his personal circumstances. In that case, the individual needs to be well-informed on exactly what type of coverage he is getting and the amount of the monthly fee. These policies always have a maximum benefit or cap. Disability coverage may only make the account's monthly payments for a certain length of time, say twelve months. There may be age exclusions. Someone who works part-time or is self-employed may not be eligible for coverage. The time to find out whether or not any exclusions apply is before the policy is bought, not when its coverage is desperately needed. Prospective policyholders also need to be aware that disability policies rarely, if ever, replace one hundred percent of one's income. Because the money is tax-free, the benefit is set at a lower percentage. Because insurance payment protection policies are optional, accountholders should never feel pressured to purchase them. In fact, a person can probably find better policies with independent providers. By being well-informed and shopping around, a person can find affordable coverage to supplement existing coverage. The question, though, remains: is it really necessary?
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