Credit Insurance Law
Credit insurance allows borrowers to indemnify themselves in cases of their inability to repay the loan. Credit insurance law regulates the process of issuance and enforcement of credit insurance policies.
Applicability
Credit insurance law, including the definition of credit insurance, is different in every state. The term “credit insurance,” however, normally refers to consumer credit. Common examples of loans for which credit insurance is available are educational, home equity, purchases of home appliances and auto loans.
The definition of credit insurance typically excludes life, accident, health and involuntary unemployment insurance. Some states also allow property credit insurance that protects the property used as collateral to secure a loan.
Borrowers’ Rights
Credit insurance is normally optional. According to the Federal Trade Commission, it is illegal to make a loan approval contingent on the purchase of credit insurance. Including credit insurance in a loan without the borrower’s knowledge and consent is also against the law.
Regulations
The aspects of credit insurance commonly regulated by state laws include the amount and cost of the policy, its duration, limitations on penalties and standards for disclosure, claims handling and enforcement.