Credit Card Insurance

If you have received a credit card recently you probably recall being asked in an aggressive and persistent way if you are interested in adding credit insurance. This can happen when you receive the mailing that delivers the card, and it often happens when you call to activate the card. Sometimes follow up telemarketing ensues. Most of us don’t really understand what this insurance is. Some reject it without consideration, and some will buy it because insurance just seems like a good idea. What is the right thing to do? That depends upon what is covered, what it costs, and how disposed you are to want insurance. First let’s describe the four primary types of credit insurance. Credit life insurance pays off the debt you owe on the credit card if you die. If you owe $2500 to a bank issued Visa card, the bank gets paid. Credit disability insurance will generally cover the minimum monthly payment should you become disabled. This insurance will have the benefit of protecting your credit score by making your monthly minimum payment when you become medically disabled. Typically there is a specific time period after which payments will not be made, that is there is a maximum benefit. As a rule, additional purchases after the disability will not be included and may not even be allowed. Involuntary unemployment credit insurance will make your minimum monthly payment if you are laid-off or fired. Purchases made after the involuntary unemployment would not be covered and again there is usually a maximum benefit amount. Credit property insurance will usually pay off your credit card debt on items you purchased with the credit card. The debt for these purchases will be paid as long as the items are totally destroyed by specific incidents that are listed in the policy. While all of this coverage sounds valuable, there are a number of things to consider. One is the cost. If your gut reaction to the monthly cost is that it’s too much money, it probably is. Recognizing that this is a subjective response, it’s usually a pretty good indicator of whether we value what is being offered. The cost per month is often relatively small, however, the coverage is often limited and does not cover a significant sum of money. There is often more bang for your buck by procuring a stand alone policy to cover death, disability or property damage. Another is the way in which the product is marketed. This usually happens in a mailing with a tremendous amount of fine print, or it happens through a telemarketer who is obliged to give you some information but it’s your responsibility to ask about other things that you wouldn’t reasonably think of. Neither of these situations is conducive to making well-considered decisions. Yet a third is whether this coverage duplicates coverage that we already own in the form of life, property, or work related insurance. Another is common sense. If you are someone who carries a very small balance from month to month it doesn’t really make sense to have life or disability insurance. Common sense would also tell you that if the sales proposition is more than you can take in and understand, it probably isn’t for you. For example your coverage may be free for an introductory period but then it kicks in at a rate that seems high. Or if the proposal seems manipulative – cash this $20 check and your coverage begins – the program probably isn’t strong enough to be sold on its own merits. If you are interested in credit insurance, here are some additional questions to ask. Can the insurance be canceled if you change your mind? Do the rates ever increase? Is the insurance affected in any way if you miss a payment? Are there dollar amount caps or time limits on what is paid? Credit insurance exists in that gray area between “seems like a good idea” and “I’m not really sure what I’m doing.” Don’t buy it impulsively, and always get a little more information than you think you need. Consider your existing policies, the cost, the benefits and why the sales are so aggressive before going forward.