How to Evaluate Credit Protection Plans

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Here are a few steps you can take to evaluate credit protection plans and decide what's best for you:

1. Remember that most credit protection is optional. If you are asked to purchase credit protection before your loan closes, find out whether your lender requires that you purchase it, and why. Don't assume that credit protection is required. When in doubt, contact the appropriate state or federal regulator for more information. If you obtain optional credit protection and later decide you don't want it, you may have a right to cancel the coverage and obtain a refund for up-front payments.

2. Evaluate your family's insurance costs, coverage and needs annually. You could be under-insured in certain areas or over-insured in others. Talk with your insurance agent or financial adviser about your situation, including any questions about credit protection. You may, for example, have enough savings to cover your minimum loan payments due, the amount generally covered by these programs, if you become sick or unemployed.

3. Before purchasing a credit protection product, consider if you already have, or would be better off with, traditional insurance. For many people, especially those in good health, they probably can get traditional insurance that can meet their needs at a more reasonable price than a credit protection plan. But for some people, especially those who are elderly, have a serious health problem, or are concerned about making loan payments if they lose their job, credit protection may be the best or only coverage they can obtain.

4. Pay attention to loan documents and monthly statements from your lender and question any unusual charges or fees. For example, if you fail to maintain the required property or hazard insurance coverage or you forget to give the lender evidence of your coverage, the creditor typically reserves the right to purchase the insurance and charge you for it, perhaps as part of your loan payment. If you're not monitoring your payments, you could be paying for a property insurance policy purchased by the lender that is more expensive and more limited than what you could obtain by shopping around.

5. Try to resolve problems as soon as possible. First contact the creditor or insurance company. If you're not satisfied with the outcome, contact your state insurance commissioner or, in the case of a debt cancellation/suspension contract, the appropriate federal or state regulator. Also, retain copies of your loan documents and related credit protection policies, terms and conditions. You may need to refer to this information if you have a question, a concern or an insurance claim.

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