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Home / Debt / What is Debt Cancellation Insurance Coverage?


According to the Consumer Financial Protection Bureau, debt cancellation insurance coverage:

”… promises to eliminate the debt if you die or cancels the monthly payment if you become disabled, unemployed, or suffer some other specified hardship, if you meet the qualifications and there are no exclusions that apply to you. These programs are similar to credit insurance in terms of their function, but fees and other features may be significantly different.”

Basically, debt cancellation insurance coverage is nearly identical to credit life/disability insurance except that it is generally much more expensive.

Who Needs Debt Cancellation Insurance

There are very few instances when you will need a debt cancellation policy. The first may be when there is a cosigner or co-applicant on your loan. The coverage would protect the credit of that person should you die or become disabled. The second could be if you are of an advanced age and truly think you may become disabled or die before the loan can be paid off. The third may be if you work in a high risk industry where injury and death are common.

Even under those circumstances, you will most likely find credit life/disability policies are more affordable. According to the Federal Deposit Insurance Corp., or FDIC, debt cancellation fees normally exceed the cost of a term life insurance policy (credit life is a form of term life insurance). If you would like more information on how car dealerships view debt cancellation coverage, you can read this article on Dealer Business ”Debt Cancellation Coverage: Fewer Problems and More Profit”

Is Debt Cancellation Coverage Just For Loans?

Debt cancellation coverage is a common offering from credit cards companies as well as from lenders. It is usually called credit protection insurance. Again, the policy is very expensive. A typical policy will cost nearly nine percent of your credit limit per year. So, a policy for someone with a $4,000 limit could cost $350 a year. Of course, your card issuer will minimize that cost by saying it is just $29 a month, conveniently added to your balance. Not only do you get overcharged, but you get to pay interest on the premium as well. What a racket.

Final Thoughts

Debt cancellation insurance coverage is nonsensical if you have any other alternative. It is very expensive and will go unused in most cases. Even in the limited scenarios presented earlier, debt cancellation is the worst possible choice.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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