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What Is Credit Unemployment Insurance?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 September 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Credit unemployment insurance is a type of supplemental unemployment coverage that provides payments directly to creditors in the event that the debtor should lose his or job. Most plans of this type will cover situations involving involuntary unemployment, such as a layoff or the shutdown of all or part of the employer’s operating sites. Unemployment benefits of this type are secured on specific types of credit accounts, including mortgages, car loans, and even some credit cards, and make the minimum payments due for a period of time while the insured party prepares to find new employment.

While there are exceptions, most forms of credit unemployment insurance begin to pay out benefits after a pre-determined waiting period that is included in the terms and conditions of the insurance contract. The waiting period begins with the official date on which employment is terminated. Many plans feature a 30-day waiting period before claims can be processed and approved, providing a window of time for the insured party to possibly find new employment. It is not unusual for the credit unemployment insurance plan to pay benefits that are retroactive to the actual termination date once a claim is reviewed and approved.

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One of the major benefits of credit unemployment insurance is that the plans will issue payments directly to creditors while the insured party is unemployed. With loan situations, the compensation will amount to all or a portion of the monthly installment payment due, depending on the scope of coverage included in the plan. For credit card debt, the plan will normally pay the minimum payment due for each monthly billing cycle, allowing the insured party to avoid late fees and possible damage to his or her credit report.

The cost associated with credit unemployment insurance is based on the range of coverage included in the plan selected. For plans that cover more types of possible unemployment scenarios and provide extended benefits for longer periods of unemployment, the premiums assessed will be somewhat higher. While very helpful in managing credit accounts, this solution is not usually intended to be long-term. Typically, insured parties will want to secure new employment as soon as possible and resume making payments on outstanding debts from income rather than relying on the minimal benefits provided by the insurance coverage.

There are usually some restrictions related to the ability to claim benefits from a credit unemployment insurance plan. Just about every plan will cover incidents in which the insured party is laid off or there is a facility closing that eliminates the job position. Very few plans will cover any incident of voluntary unemployment, such as choosing to resign from a position. The number of plans that will provide benefits when the covered party is fired from his or her job is also somewhat limited.

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