Debt Protection Plan

Debt protection plan summary:

• Debt protection plans can give you peace of mind if you lose your job or face injury or illness.

• All policies have limitations, exclusions, and payout maximums that you should understand before you purchase the plan.

• The monthly cost of a debt protection plan often ranges from $0.85 to $2 or more per $1,000 of debt.

Debt Protection Plan Definition and Meaning

A debt protection plan is a financial product to help you manage your debts in a covered event, such as job loss, disability, or death. Debt protection plans can also be called payment protection plans, debt protection insurance, or credit insurance.

Key Features of a Debt Protection Plan

Debt protection plans don't kick in until triggered by a qualifying event, as spelled out in your plan. Most protection plans fall into one of three categories:

• Involuntary unemployment coverage. This type of coverage kicks in if you lose your job through no fault of your own, such as layoffs or downsizing.

• Disability coverage. This plan covers you in the event of serious illness injury, especially when it includes hospitalization.

• Life coverage. This coverage kicks in when the primary policyholder dies.

Depending on your plan, the debt protection could do anything from cover your monthly payments for a few months to pay off your debt entirely. For example, life coverage could pay off your house if you die, so that your family doesn't need to deal with mortgage debt.

Key Aspects of Eligibility, Limitations, and Exceptions

Eligibility requirements vary by provider and plan. Some providers have age limits, both minimum and maximum, as well as restrictions on current employment status and hours worked per week.

Read the fine print of your debt protection plan carefully so you know all of the potential exclusions and limitations. Common situations that may not be covered can include:

• Voluntary job loss. Unemployment coverage generally doesn’t apply if you quit your job. Getting fired for negligence or another preventable reason could also exempt you from coverage.

• Pre-existing conditions. Certain pre-existing illnesses or injuries may not be covered by a disability or life policy.

• Self-inflicted conditions. The benefits might not kick in if your death or disability was intentionally self-inflicted.

Another thing to note is whether there’s a waiting period before coverage starts. For instance, you may not be able to make a claim during the first 90 days of your policy. Most policies also have a maximum coverage amount. You may have maximums, both per claim and over the life of the policy. 

Costs of a Debt Protection Plan

The cost of your debt protection plan varies significantly based on the specifics of the policy. Plans are priced based on the type of coverage and the amount of debt. A typical provider may have a monthly charge anywhere from $0.85 to $2 or more per $1,000 of debt. 

For example, say you have $10,000 in debt you want to protect. Using the range above, that could cost you between $8.50 and $20 a month, depending on your plan.