Credit Insurance is an optional insurance product filed with the State Insurance Department that allows borrowers to insure against unforeseen loss. Credit Insurance is a three-party contract between the insurer, the lender, and the borrower. The insurer provides a policy from which a borrower may purchase a certificate through their lender/agent.
The insurer assumes all risk of loss. The lender earns service fees for facilitating the program, and licensing may be required depending on State regulations. Retail rates are provided by the insurer, according to State regulations.
Debt Protection is an optional lending product (not insurance) that allows borrowers to protect against unforeseen loss. Debt Protection is a two-party contract between the lender and the borrower.
The borrower may purchase a loan addendum from their lender whereby the lender agrees to cancel all or a portion of the borrower’s debt if certain loss conditions are met. The lender assumes the risk of loss in cancelling debt, then transfers that risk to an insurer via a Contractual Liability Policy. The insurer charges the lender wholesale rates through the Contractual Liability Policy, then the lender selects a markup for commission that determines the retail rate.