|by Jason Steele|
I came across this article in Consumer Reports about 10 insurance policies you don’t need. Wouldn’t you know it that half of them are actually offered by credit card companies and are a complete waste of money.
Tour de Scam
Let’s take a look at how your credit card company is trying to scam you by selling you “insurance”
First, Consumer Reports lists:
Credit-card-loss protection. It pays off losses if your card is stolen and the thief goes on a spending spree. Plans cost $7 to $15 a month. But federal law limits your loss to $50 per card. Instead: Put credit-card numbers in a safe place, and report lost cards ASAP.
If you didn’t know this, you have already failed credit card 101. In fact, I have never heard of anyone even being charged the $50 per card. In the few instances where I have had my credit card number stolen, my bank has immediately credited my account in full for the fraudulent charges. What is really fraudulent is the way credit card companies try to pretend that you could be liable for fraud in order to sell this junk. I can’t think of a bigger scam.
Next, we have the:
Credit-life insurance. Credit-card companies, banks, and other organizations that finance a purchase or lend money offer policies that repay a loan if you die. According to the Consumer Credit Insurance Association, the average rate across the nation for credit insurance is 50 cents per $100 of coverage. This means a consumer pays $30 a year to insure a $6,000 loan. That’s a lot of money when a healthy, nonsmoking man of 40 can $100,000 of 10-year level term coverage for as low as $100 a year. Instead: Make sure you have enough term life to cover loan payments.
This one is not quite a scam, just a really bad deal. It is not only 5 times the market rate for insurance, but it ignores the fact that your loans are subject to court proceedings after you die. If you are making interest payments on credit card debt, that is bad enough, to “insure your debt” at inflated prices is a terrible deal.
Number three is:
Credit disability insurance. This policy will pay minimum installments on a loan, typically up to 36 months, if you are disabled according to the terms of your policy. A policy may cost $21 per $1,000 of coverage. Instead: Make sure that your disability plan will cover your expenses, including any loan payments
This is pretty much the same as the credit life insurance. It is a terrible deal that is best covered by other insurance products.
Number four is:
Credit-card balance insurance. Credit-card companies market this policy which makes minimum payments on a credit card, if you are ill, disabled, or lose your job. Monthly premiums are based on the card’s balance. For instance, at 90 cents per $100 and a balance of $3,000, you’d be stuck for $27. At that balance level your yearly premium would be $324. Instead: Create an emergency fund that will cover 3 to 6 months of your expenses.
Yet another waste of money. There is a trend here. If you are so in debt that any temporary disability will cause you to default, clearly you are ripe for marketing very low value insurance like this. This only pays off your minimum balance, which we all know will not pay off your debt until well after the next ice age.
Number five is:
Identity-theft insurance. Sold by banks, credit-card issuers, and specialty insurers, it covers the cost of repairing your credit and sometimes attorney’s fees. Policies cost $20 to $180 a year for up to $25,000 in coverage, which does not include unauthorized charges or funds siphoned from accounts. Instead: Check your credit reports regularly. You can now get a free annual credit report from each of the three credit bureaus (Equifax, Experian, and TransUnion).
This is a tough call, as identity theft insurance could be a good thing. Unfortunately, similar to most travel insurance, it has so many holes as to be as useful as a leaking life raft. It doesn’t include unauthorized charges, the biggest problem is your thief gains access to your bank account. The real danger of identity theft is loss of time and aggravation sorting the whole thing out. I am not sure how an insurance company can go about reimbursing you for that.
One Possitive Note
I am giving the credit card companies some grief here, but one of these insurance policies is actually unnecessary because you have a credit card. That would be the rental car coverage. Fortunately, you can decline the coverage offered by a rental car company because your credit card, in most cases, will provide coverage for you. My only warning to you would be to carefully read the terms of your credit card’s rental car insurance. Several countries are not covered, and most specialty vehicles other than basic cars are not covered.