Have A Question About Credit Cards?

New Page 1
Most Popular Pages
2010 Best Credit Cards
Credit Card Cashback Calculator
American Express Black Card Review
Starwood Preferred Guest Card Review
Sign Up For Our Newsletter
Email:
Name:
We do not share or sell your information Privacy Policy
«
»

The Truth About Credit Card Insurance

by Connie Brooks

Credit card insurance is designed to protect you in the event that you lose your job or pass away unexpectedly. The credit card insurance itself can be expensive, and it’s not always in your best interest to purchase it.

How Credit Card Insurance Works:

Each month you will pay a fee to your credit card company for the privilege of having credit insurance. This insurance is designed to make your minimum payments for a few months if you lose your job. In the event of your death, the insurance kicks in and usually pays off the balance in full.

The monthly fees for credit card insurance range from free (with certain high-end cards) to $10 -$20 or more a month. It’s not extraordinarily expensive – unless you have lots of credit card accounts and you are paying those fees on every account you have.

The personal finance community as a whole seems to be split on the idea of credit card insurance, with the majority saying that it is a bad idea. I’ve linked a few articles at the bottom of this one, that will give you more information on their reasons for boycotting credit card insurance.

Personally, I believe that in some situations credit card insurance is a useful tool, but just like anything else, it isn’t going to work for everyone. Let’s take a look at some of the pros and cons:

Pros of paying for credit card insurance:

  • Clearly the biggest benefit of credit card insurance is that it helps to protect your good credit rating. I can tell you from experience that it’s a whole lot easier to mess up your credit rating than it is to repair it! It takes very few accidental late payments before your credit score drops considerably.

    It is always possible that something could happen – you could be laid off, or hurt, and you might not be able to make your monthly payments. Having that credit card insurance provides a bit of comfort, even if it’s an added expense.

  • Credit card insurance is an excellent product if you have no job security - Low man on the totem poll? Your company isn’t doing so well? It might be worth the monthly expense if you are seriously worried about keeping your job. If you lose your job, the insurance will kick in and take care of the monthly payments until you are back on your feet.
  • The credit card insurance death benefit insures that your family will not have to deal with your credit accounts when you pass away. It is a consideration to friends and family members, but possibly not one that justifies the expense. (I’ll explain more about that below.)

    • Cons of Credit Card Insurance:

    There are several cons to credit card insurance, and they are hefty ones:

  • Credit Card Insurance is expensive - Who wants to pay $10 – $20 a month over 3-5 credit accounts (or more?!). The money would be better spent by reducing the revolving balance on your credit cards – then you wouldn’t need the insurance.
  • It doesn’t always work like it is supposed to - In order to satisfy some of the requirements for using credit card insurance, you have to submit proof of unemployment, death certificates, etc. Some programs have stricter policies than others about when the insurance actually goes into effect, and under what conditions. The only way to know is to look at the terms and conditions carefully.
  • Credit Card Insurance only pays the minimum balance - If you were to lose your job and activate your credit card insurance, at best it is only going to make the minimum payments on the account. The insurance itself is not designed to reduce the total amount you owe, but rather, to be a stop-gap that basically pays the interest due on the card.

    • Alternatives to Individual Credit Card Insurance Policies:

    A reader by the name of Lollie recently asked us, “Can I subscribe to one credit card insurance to cover all of my cards?

    I am in the process of eliminating all of my credit cards. However, it will take about 16 months to complete this.

    Help!! I’m paying dearly, for each cards insurance.”

    Unfortunately, there is not a “cover-all” insurance policy for credit cards. This is because credit card insurance isn’t real insurance. It’s not regulated like life or health insurance. Very simply, the credit card protection / insurance policies are actually just agreements with your credit card’s issuing banks. The bank agrees to give you a few months grace if you lose your job, or to forgive your balance if you pass away. In return, you agree to pay a fee to them each month.

    The best alternative to credit card insurance is actually a term life policy. If you have high debt, and want to make sure you are covered in the event of your death, you can purchase a basic term life plan that covers the amount of your outstanding credit debt. This is especially useful for people with a lot of different credit accounts. Term life won’t help you if you lose your job though. If you are worried about job security, individual credit card protection (at least for the cards with the highest balances) may be an option.

    For more information on the pro’s and cons of credit card insurance, you can check out these articles:

  • Credit card insurance: don’t believe the hype
  • 10 insurance policies you don’t need @ Consumer Reports
  • Is Credit Card Insurance a Scam?

    • Have a question for us? Leave a comment below!

    This entry was posted on Sunday, April 19th, 2009 at 07:41 and is filed under Credit Cards FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

    3 Responses to “The Truth About Credit Card Insurance”

    1. kirk Says:
      April 22nd, 2009 at 18:21

      I live in Indiana,and have a few credit cards that I have always held unemolpoyment insurence on.I have been laidoff for the required length of time to be able to claim the insurence on them,all of whitch will pay the minimum amount on my ballances.I have used the cards since being laidoff,(going on six weeks now)and have made payments on my accounts,as I do recieve unempoyment bennifits weekly.One of my cards is subject to two more schedualed for two more monthly payments and one I accepted an offer of alower intrest rate and alate payment cancelation fee in order not to close out my card with them.I am current and in great standing with all of my cards,but I don`t know if I should utilize the insurences,for the above reasons.And mostly because I want to continue to use the cards while I am laid off.so I have not yet notified any of them of my current employment situation.Could you please inform me as to weather or not I should be able to get a partial insurence payment ,i.e.(for the minimum amount due at time of lay-off) and I would pay the difference? Can I still use my cards?thank you very much.

    2. deddy damora Says:
      April 26th, 2009 at 22:23

      There are many different types of credit card insurance. Including:
      • Credit disability — pays your minimum monthly if you become disabled.
      • Credit unemployment — pays your minimum monthly if you are fired or laid off.
      • Credit property — pays for items purchased with the card in the event that they are broken, lost or stolen. (Some cards offer this for no additional charge.)
      • Credit life — pays if you pass away.

    3. julie Says:
      May 17th, 2009 at 22:27

      I received an sms from my bank informing me that my credit card insurance would be stopped next month. Can they do this? Why would they do this? Whats the best thing to do?

    Leave a Reply

    Site Meter