Every credit card company is more than eager for cardholders to sign up for protection insurance. Although some companies may have special names for it, this type of coverage has similar provisions. Many people chalk this option up as a needless expense before hearing the details. However, those who read or listen to the provisions may think they seem like a good ideas. There are several important issues to consider before signing up.
What Credit Card Protection Covers
Most cards offer a multi-faceted plan, which is why they seem so attractive. For a low monthly fee, card companies offer to pay certain expenses.
- Credit disability insurance covers minimum payments for a specific period following a cardholder’s disability. However, purchases made after the disability are not covered.
- If the card company is named as the beneficiary, credit card life insurance pays the balance after the cardholder’s death.
- Credit card property insurance pays for damaged items purchased with the card. In some cases, stolen items may be covered.
- If a cardholder is laid off from work for a specific length of time, involuntary unemployment insurance pays the minimum balance for several months. Purchases made after unemployment are not covered.
At first glance, these all look like great benefits to have. However, it is important to read the fine print. Credit card companies are notorious for restrictions and stipulations, so be sure to understand them.
Why Coverage May Be Too Expensive
Most credit card companies bill for the protection plan based on a percentage of the balance. For example, one major credit card company bills $.89 per $100 of the balance. This means a person carrying a regular monthly balance of $1,000 would pay $106.80 for the year. Many individuals today have their own insurance policies for disability, life and property damage. In addition to this, unemployment benefits are usually available to workers who are laid off.
Debts May Simply Be Deferred
Although each company has its own policies for insurance, the majority of them only defer payments. They may claim they will pay the monthly amount, but they never indicate the balance will go down. Think of their plan as a type of deferment. If the goal is to eliminate interest, consider using a balance transfer card instead.
In many cases, paying for the card’s benefits is much easier than collecting them. One major company requires unemployed individuals to wait 60 days before collecting. In addition to this, they must file a form that costs $25. For the overall high price, such qualification hassles are not worth it.
The most important step is to find out the specifications of every exclusion. People who already pay for individual policies will probably not benefit from a credit card company’s limited protection. Those who do not have individual insurance policies for these items may want to speak with a local agent to compare rates.
Andrew Bennett is a writer and finance counselor who understands the importance of owning credit cards in order to rebuild your credit.