How credit insurance on a loan works
Credit insurance pays some or all of a loan if the borrower dies, is disabled or loses income. The Washington State Office of the Insurance Commissioner says credit insurance is voluntary: lenders cannot deny you a loan because you do not buy it from them, although you may need to show you have cover elsewhere. It adds that the premium is often included in the total amount of the loan, so you pay interest on it, which can add up over time. That guidance is written for consumers, and rules for business loans can differ, so ask your lender what applies.
This calculator does not estimate premiums. It takes the premium from your quote and shows what it adds to the loan, whichever way it is charged.
Monthly, deducted or paid in cash
A monthly premium of $85 over the same 84 months adds $7,140.00 to the cost and takes the APR to 10.76%, which is 1.12 percentage points more. A single $1,500 premium paid in cash, with the origination fee also paid separately, adds $1,500.00 and takes the APR to 9.97%. A single $2,600 premium deducted from a 60-month loan leaves you with $144,400.00 instead of $147,000.00, adds $2,600.00 and takes the APR to 10.64%.
On a financed premium the cash you receive does not change, but you pay interest on the premium. Compare the extra cost and the APR together before you decide how to pay.
With the origination fee added to the loan
On $80,000 at 11.5% over 48 months with a 3% fee added to the loan, a financed $2,100 premium raises the payment from $2,149.73 to $2,204.52. The premium and $529.77 of interest add $2,629.77 to the cost, and the APR rises from 13.09% to 14.46%.
What this estimate leaves out
This is a planning estimate for fixed monthly payments. It does not value the cover, check what a policy pays, model premiums that change, refunds of unearned premium when the loan is repaid early, taxes or what a lender may require. Your insurer's illustration and loan documents are the figures that count.
To explore the loan itself, with extra payments and early payoff, use the business loan calculator.
For credit insurance on a personal loan, use the credit insurance calculator.
Use the right country page
This page stays in US dollars and uses US terms: credit insurance, origination fee and APR as the nominal annualised rate. The country choices above the inputs open separate local pages. Choosing United Kingdom opens the business loan insurance calculator, which uses pounds, an arrangement fee and APR as the effective annual rate. The inputs reset and amounts are not converted.
Inputs for the business loan credit insurance calculator
How the premium is charged
Monthly with each payment, added to the loan, deducted from the loan, or paid in cash at the start.
Origination fee is
Whether the origination fee is deducted from the loan, added to it or paid separately.
Loan amount, interest rate and term
The loan you are pricing, before any fee or premium is taken from it, and the months you take to repay it.
Origination fee
A percentage of the loan amount, from your quote. Enter zero if none.
Premium
The premium from your insurance quote: the monthly amount, or the single amount, as chosen above.
CALCULATOR QUESTIONS
US business loan credit insurance calculator questions
How much does credit insurance add to a business loan?
At least the premiums, plus interest if the premium is financed. A $1,800 premium added to the example loan costs $2,432.67 in total.
Does credit insurance change the APR?
Yes, when the premium is part of the cost of the loan. In the example the APR rises from 9.64% to 10.03%.
Is credit insurance required to get a loan?
A state insurance regulator's guidance says it is voluntary for consumer credit, so lenders cannot deny you a loan for not buying it from them. Ask your lender how that applies to a business loan.
Why is a financed premium more than the premium itself?
You pay interest on it for the whole term. The $1,800 premium costs $632.67 of extra interest over 84 months.
Does the calculator work out the premium?
No. Premiums depend on the people or loan covered and the insurer, so you enter the premium from your own quote.
What happens if I change country?
The United Kingdom option opens the separate business loan insurance calculator, in pounds, with an arrangement fee and an effective annual APR. Your inputs are reset rather than converted.