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Personal Loans

Personal Loan Insurance

Personal loan insurance is a type of credit insurance that offers financial protection in the event that you can’t make payments due to a serious financial hardship. In particular, coverage can kick in if you involuntarily lose your job, become disabled, experience a serious illness or die. 

Understanding how personal loan insurance works can help you determine whether it’s a good fit for you and your situation. Here’s everything you need to know to decide if the peace of mind is worth the cost. 

Can you get personal loan insurance?

Personal loan insurance is an optional coverage that you can add to your personal loan during the origination process if your lender offers it. 

In most cases, it doesn’t make sense to get personal loan insurance, primarily because the protection only applies in certain situations. As a result, the cost may not be worth it. That said, you may consider buying credit protection if you’re concerned about your job situation or if your family has a checkered medical history. 

Types of personal loan insurance

There are three different types of personal loan insurance coverage, including the following:

  • Credit life insurance: If you die before you pay off your loan, this policy will pay off some or all of your remaining balance, up to a maximum coverage amount.
  • Credit disability insurance: If you become disabled due to a covered illness or accident, this policy will cover your payment up to a maximum monthly and lifetime amount.
  • Credit unemployment insurance: If you lose your job involuntarily, this policy will cover your monthly payment for a set period. 

Keep in mind that not all lenders offer all three types of coverage. However, you aren’t required to buy any of these policies to qualify for a loan.

How personal loan insurance works

The terms for personal loan insurance protection will depend on the type of coverage you choose and the lender that offers it. In general, though, here are some features to consider:


Some lenders may require you to meet certain criteria to be eligible for coverage. For example, you may need to be working a minimum number of hours per week to opt for credit disability insurance, and borrowers who are self-employed or have pre-existing medical conditions may be ineligible.


Some lenders may require you to bundle certain types of coverage together. For example, you may not be able to get unemployment coverage unless you also buy life and disability coverage. 

Coverage limits

Lenders may set a monthly coverage cap, as well as a maximum benefit amount. If you’re taking out a large loan, the policy may not be enough to cover your full payment or loan balance. 

Coverage periods

If you become disabled temporarily or lose your job, your lender may set a time limit on your coverage. Additionally, lenders may place age limits on coverage. In other words, the lender may reduce your coverage limits or nix your coverage altogether once you reach a certain age.  


In general, lenders add the cost of the policy to your monthly payment. In some cases, however, the lender may add the policy premium to your loan balance. If this happens, it may charge interest on both the borrowed amount and the premium, increasing your total cost. 

Lenders typically partner with an insurance company to provide personal loan insurance policies. To file a claim, you may be able to reach out to your lender or the insurance carrier by phone or through an online portal. In some cases, you could even visit a local branch.

You can typically cancel your policy at any time, but you won’t get a refund of your premiums unless you submit your request within a short period after buying the policy. 

How much does insurance for a personal loan cost?

The cost of personal loan insurance coverage can vary depending on the type of coverage you buy and the lender that offers it. In many cases, lenders don’t provide specifics on how much coverage costs, but it’s typically based on the amount you borrow. 

Here’s just one example of a monthly rate from Virginia Credit Union (as of April 2024):

Type of coverageIndividual loanJoint loan
Credit life insurance$0.59 per $1,000$0.97 per $1,000
Credit disability insurance$1.02 per $1,000$1.68 per $1,000
Credit involuntary unemployment insurance$0.63 per $1,000$1.02 per $1,000

Note that this monthly rate is based on your current principal balance instead of the original balance, which means that the cost of coverage decreases over time.

If you have a $10,000 loan, you may pay $5.90 the first month for credit life insurance. But when you’re halfway through your loan repayment plan with a $5,000 balance, your premium for that month will be $2.95.

If you buy multiple types of protection, your premiums will go up. This can be particularly frustrating if the coverage you want isn’t offered as a standalone policy. Also, if your lender adds the premium to your loan balance, the cost will be fixed.

Pros and cons of getting insurance on a personal loan

Before you consider adding debt protection for your personal loan, it’s important to consider the advantages and disadvantages, particularly in how they apply to your personal situation. Here’s what to keep in mind.


  • Helps you avoid late fees

    If you don’t make your loan payment by your due date, your lender may add a late fee to your account.

  • Protects your credit score

    Missing a payment by 30 days or more could wreak havoc on your credit score. If you can’t afford to make your payment due to a covered reason, you won’t have to worry about credit score damage.

  • Can prevent other negative consequences

    If you experience long-term financial hardship due to a disability or involuntary job loss, personal loan insurance could protect you from having your debt sold to a debt collector, who could file a lawsuit against you to collect. It can also help you avoid needing to file for bankruptcy to protect yourself.


  • You may be ineligible

    If you have a pre-existing medical condition, you work part-time or you’re self-employed, you may not be able to get coverage.

  • Coverage can be limited

    Personal loan insurance only offers protection in certain situations. Depending on the details of your financial hardship, you may not qualify for coverage. Even if you are eligible, coverage limits may not be enough to provide full protection.

  • Increases your loan costs

    Credit insurance is an additional cost on top of your interest charges and principal loan balance. Depending on how much you borrow, the extra cost could put undue pressure on your budget.

Ask the expert

Natalie Slagle


I typically do not recommend this type of coverage. Instead, create your financial situation to be self sustaining in the event of a disability, unemployment, or death. There are other options to cover your cash flow when you still need to make payments toward your personal loan. In regards to disability or unemployment, have an emergency fund to cover their expenses should a reduction in income occur. There is also disability insurance and unemployment insurance that could boost a person’s cash flow in the event of a job loss or reduction of income. It’s important to review if your estate or heirs would still be responsible for the personal loan should an unexpected death occur. If they are, we want to know you have life insurance to cover your debts or assets like a 401(k) to cover outstanding balances. 

Should you get personal loan insurance?

In most cases, you likely don’t need personal loan insurance. In fact, many lenders are willing to work with you if you’re experiencing financial hardship. 

These hardship programs may offer reduced payments or interest rates or even pause your monthly payments for a set period of time while you get back on your feet. However, these relief options can be limited in scope, so there are still some cases where it could make sense to buy extra coverage. 

As you evaluate your situation and your options, here are some scenarios where it may or may not make sense:

Consider personal loan insurance if …Don’t consider personal loan insurance if …
✅ The lender you’re borrowing from offers it❌ Your employment situation excludes you from coverage
✅ You meet the eligibility requirements❌ The policy terms limit your ability to qualify for protection
✅ You’re concerned about your job stability❌ You aren’t concerned about your job stability or health situation
✅ Your family has a history of medical problems❌ You have pre-existing medical problems
✅ You can afford the added cost❌ You can’t get the coverage you want without buying other policies
❌ You’re on a tight budget

Before you buy personal loan insurance protection, carefully consider your situation and the cost of coverage. You’ll also want to read the coverage terms carefully to assess your eligibility and potential limitations that could make it difficult to get protection when you need it.