Other Types of Insurance – Creditor, Mortgage, Travel & More

As long as the request is reasonable and the risk can be assessed, people can generally purchase insurance against just about any event. Some events just aren’t of a known risk though, for instance insurance against being abducted by aliens, and given that it would be so difficult for insurance companies to even know what to charge you for this, these aren’t the sort of things you could get coverage against, but many things are.

There are several components that are required for insurance to be offered, including the parties buying the insurance having what’s called an insurable interest. Insurance companies are only interested in compensating for losses, so you couldn’t insure your neighbor’s life for instance since you would not suffer any real economic loss if they died.

If this is your business partner though, then this is going to make a lot more sense, and we’d now have an insurable interest involved.

Other Types of InsuranceWe also need to be able to come up with a good idea of what the probability of the risk is, and insurance companies can generally do that provided they have historical data to rely on. So with your business partner, they can categorize him or her according to various demographics and come up with some general probabilities which will suffice.

The third major component is that it has to be profitable for the insurance company to offer the policy, and this generally means that there has to be a market for it, which is indeed the case with just about all insurance. Since insurance involves pooled risk, the pool generally needs to be large enough in other words.

In some cases though an insurance company may offer individual policies based upon much rarer requests, Lloyd’s of London for instance is well known for this, but this is typically not the case with insurance companies in general. It generally takes quite a bit of work for a company to come up with a risk analysis, and if this was truly done individually, the administration costs would add a lot to the premiums required, but if one is willing to pay for this, it’s possible to insure just about anything.

There are several categories of insurance that are less popular but still popular enough to be widely offered though, including such things as mortgage insurance, creditor insurance, travel insurance, pet insurance, and even kidnap insurance.

Mortgage Insurance and Creditor Insurance

Both mortgage insurance and creditor insurance cover the risk of someone not being able to pay back money they borrowed, and in a real sense protects the creditor, although they do have some benefits for the borrower as well, and can often make sense.

Creditor insurance covers various perils that may occur which may prevent the borrower from paying back a credit facility, a loan or a revolving line of credit, in a timely manner. Whether or not one purchases these coverages does not really influence the likelihood of one being able to obtain credit, although often borrowers feel this might be the case, but mistakenly so.

Credit is generally priced independent of this coverage though, meaning that you don’t get a better rate if you purchase it versus if you don’t, but you definitely get protection against certain things that may cause you to default on the credit facility.

There are three types of creditor insurance, which are life, disability, and job loss. These are all situations where one’s ability to repay the debt will be affected. If one dies, and one has assets, then the liability is going to be deducted from that, leaving your loved ones with exactly this much less to get by on should you pass away.

So creditor life insurance is a form of tailored life insurance that is priced to exactly cover what liability exists should one die, and is priced accordingly, which presents some real advantages over buying coverage yourself. Creditor insurance also tends to be reasonably priced generally, as lender has the ability to negotiate more favorable terms than you do.

If you have no assets to protect though, although hopefully you do, then this insurance wouldn’t make any sense to get actually. Still though, many people who would have no assets to protect upon their death purchase this, from a lack of understanding.

Disability and job loss insurance both involve supplementary coverage allowing you to maintain your payments should these events occur, and this not only protects the lender from default, it also protects your credit rating. That’s the main reason why one should purchase this, although if one’s credit rating deteriorates during the term of the loan, this can make less sense.

Mortgage insurance covers the principal of the mortgage should one meet an unfortunate circumstance, which tends to be even more important given that one can lose one’s home if one of the parties dies or otherwise becomes unable to meet their obligations. Given the increased importance of this, it is generally always a good idea to maintain mortgage insurance.

Travel Insurance and Kidnap Insurance

Travel insurance provides coverage for various things that can happen when travelling. This may even include a policy whereby the insurance company will agree to pay kidnappers’ ransom demands, within the limitations of the policy.

Like all insurance, one can purchase policies providing various amounts of protection, for various amounts of money, which is also priced according to the risk involved. If you are traveling on business, and you are visiting an area where the kidnapping rate is fairly high, your employer will generally provide the coverage for you.

This is only fair given that you are there for their benefit. Kidnapping is unfortunately fairly prevalent in some areas, and this protection may indeed be desirable. If the ransom is paid, then often times people can get freed where they may not be otherwise, so given that your life may depend on this, it can be an pretty important protection to have. One can also purchase this coverage individually as needed.

Travel insurance also covers a variety of other things that can happen while traveling, both domestically and internationally, although international travel does require more comprehensive protection.

The most significant thing that you want to insure against is your requiring medical treatment abroad. Whether your health care coverage is provided by the government or obtained privately, your coverage will be limited in other countries, or may not apply at all.

Therefore, should you require medical treatment and don’t have the means to pay for it, or even if you do but the cost would represent a financial hardship, these are not situations that you ever want to have yourself in.

So supplemental medical coverage is available to cover you against these expenses, and also to ensure that the quality of your care is sufficient. There may be a tiered system for instance, one for those of means, and one for the indigent, and you probably don’t want to be placed in the latter group.

You also want to be covered for costs associated with your being flown home for medical care, called medical evacuation. This can be quite expensive, costing $10,000 or more, as this is not a regular flight, as often care must be provided to you on board.

You may also suffer an event that may preclude you from making the trip home, and longer term care may be required, so this also must be kept in mind when purchasing these coverages, especially with those who are elderly or have existing health conditions.

Other types of coverage under the umbrella of travel insurance include trip cancellation insurance, baggage insurance, the provision of emergency travel assistance, and accidental death coverage. Travel insurance is something that all travelers should consider, especially those traveling to other countries.

Pet Insurance

Many people have pets, and part of pet ownership is taking on the responsibility of providing health care to your pets when required. Pets need health care just like we do, and although the risk of financial hardship is greater with health care for people, costs of health care for pets can sometimes be pretty significant as well.

One of the reasons why heath care for pets tends to be less burdensome financially is that veterinary services for pets tends to be less cost intensive than for humans, although with advances in veterinary medicine lately, the gap has really closed.

Given that insurance really only makes sense when the expenses incurred for something are truly burdensome, and especially with those that one does not have the ability to pay for, unless the costs involved are great enough, insuring common events that may only cost a few hundred dollars really don’t make much sense.

However, if one is faced with seeing one’s beloved pet die simply because one does not have te money to pay for a certain veterinary procedure, this can cause one a lot of grief and one may want to purchase coverage to ensure that this does not happen.

These days, it isn’t that uncommon for vet bills to rise to the point where one indeed may be faced with the decision to not treat, and while people are going to see these decisions with varying degrees of gravity, one may not want to be faced with such a choice, and this is where pet insurance can kick in.

With pet insurance, the coverage tends to be pretty broad though, more so than would be ideal from a practical standpoint, and the price one usually must pay to maintain pet insurance is to have things they probably shouldn’t be covering, like costs of a more incidental nature, included in the coverage they should want, not just the more expensive stuff they don’t have the means to deal with.

For those who have pets though, pet insurance is at least worth some consideration, as is the case with all insurance that one feels that they may benefit from to manage whatever risks life throws at us, or our loved ones, including the four legged kind.

Creditor/Mortgage/Travel/Kidnap/Pet Insurance FAQs

  • What type of insurance is creditor insurance?
    Creditor insurance protects both your lender from you not being in a position to make timely payments on your loans and it also protects your credit rating should this happen. Should you lose your job or become disabled, creditor insurance can make the payments for you while you are off work. It can also be used to protect your assets if you die and owe a balance.
  • How does creditor insurance work?
    Creditor insurance benefits the creditor primarily, which is why it is called creditor insurance, but it also benefits the borrower since this can either reduce the burden of a loss of income or better preserve what you leave behind to your loved ones should you die prior to paying your loan. Borrowers pay a premium each month for the coverage desired.
  • What is creditor insurance premium?
    A creditor insurance premium is the cost to a borrower for maintaining their selected creditor insurance protection. Each type of creditor insurance, job loss, disability, and life, has its own cost or premium per month and borrowers may select one or more types of coverage, with the cost being added by the lender to their loan payments.
  • What is mortgage insurance and how does it work?
    Mortgage insurance allows lenders to provide mortgages to those who do not meet their normal down payment requirements of 20%. If not for mortgage insurance, you would need to wait until you saved up this much to buy a home. If you default on your mortgage, mortgage insurance will make up for the losses that lenders incur when foreclosing.
  • How much does mortgage insurance cost?
    The cost of mortgage insurance first depends on the size of the mortgage that is taken out, as mortgage insurance is priced as a percentage of the amount insured. There may be an upfront percentage charged, an ongoing percentage, or both. Upfront amounts range from 1-3% and ongoing amounts range from 0.5% to 1% per year.
  • Do I need mortgage insurance?
    You only need to purchase mortgage insurance if it is a requirement of your mortgage lender, which means you making a down payment of less than 20%. In this case, without mortgage insurance, you just won’t get a mortgage, so while mortgage insurance is never anything we want to pay, when we need to, it is necessary to get the mortgage.
  • Is travel insurance worth getting?
    Travel insurance can be quite worthwhile as incidents may occur that may either involve losses to the traveler if their plans change or something happens while they are away such as their needing medical care. Some premium credit cards offer travel insurance for free though and this is by far the best way to get covered since it costs you nothing.
  • How much should I pay for travel insurance?
    What you pay for travel insurance will depend on what kind of coverage you desire, and it is important to only select the coverage you need as it is with all insurance. You may be able to receive travel insurance for free with various credit cards, so if you have one, paying nothing is ideal. Otherwise, it does pay to shop around for travel insurance as costs do vary.
  • Is pet insurance worth the money?
    Whether or not pet insurance is worth it to you will depend primarily on the impact of potential vet bills upon your finances. If you can handle these things fairly easily on your own, it wouldn’t make sense to insure against this. If you are worried about such things though, pet insurance can both provide peace of mind and ensure that your pets get adequate care.
  • What does pet insurance actually cover?
    Pet insurance provides a certain level of coverage for medical expenses involving your pets. What we want to be covering here is the larger vet bills that we cannot comfortably manage ourselves, and therefore pet insurance comes with deductibles but we should want them. The details of the coverage vary and is specified in the insurance offer.
  • Does travel insurance cover kidnapping?
    Normal travel insurance covers normal incidents that arise during travel, and kidnapping is not one of them, so this must be purchased separately or as an add-on. Kidnapping insurance is not standardized and must be tailored to the needs of the client, so this is not something that could be offered in a standardized policy like travel insurance.
  • How does kidnapping insurance work?
    Kidnapping insurance covers things like paying ransom demands and other costs related to your being kidnapped. The insurance does not pay the ransom though so you have to come up with this on your own, but it can allow you to be reimbursed according to the terms of the policy, as well as allow you to recover certain other costs that are incurred.

Editor, MarketReview.com

Robert really stands out in the way that he is able to clarify things through the application of simple economic principles which he also makes easy to understand.

Contact Robert: [email protected]

Topics of interest: News & updates from the Federal Deposit Insurance Corporation, Retirement, Insurance, Mortgage & more.