 Know
the 4 types of credit card insurance
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 Dear
Debt Adviser,
What is your feeling about the necessity to purchase credit card
insurance? I did not used to feel it was necessary until I lost
my job last fall and have only been able to obtain part-time employment
at less than half of what I was making. Could you offer some advice
on questions to ask the credit company prior to authorizing the
purchase of the insurance?
-- Brian
 Dear
Brian,
Insurance needs tend to be very specific to a person's life situation,
and credit card insurance is no different. Having said that, the
insurance sounds wonderful for the scenario you describe of losing
a job and half your income; however, the credit card insurance might
not kick in, as you would hope.
First, let's agree on what credit card insurance is
and how it might or might not benefit you. Four major types of credit
insurance are offered: life, disability, involuntary unemployment
and property.
-
Credit life insurance
will pay the amount owed on your card at the time of your death,
so long as the card company is named the beneficiary of the insurance.
-
Credit disability insurance
will cover the minimum payment due on your card for a specified
period after a medical disability. New purchases after you become
disabled are not covered.
-
Credit involuntary unemployment insurance
will pay the minimum amount due on your account if you are
laid off or downsized for a specified period. New purchases after
you become unemployed are not covered.
-
Credit property insurance
might come with your credit card and usually provides payment for
items purchased with the credit card if the items are destroyed
or, in some cases, stolen.
As you can see from the above, one shortcoming of
disability or unemployment credit card insurance is that the payment
made by the insurance is only your minimum payment and usually only
for a very limited period. Another drawback is that if you have
several credit cards you have to purchase separate insurance for
each card.
A better alternative for you might be your everyday,
ordinary term life or disability insurance. You might receive better
coverage at a cheaper price, and once the insurance has paid your
credit card your dependants would receive the remaining amount.
Questions to ask your card issuer before purchasing
insurance:
-
What are the situations where they pay and those
where they don't?
-
Are there any age restrictions for life or disability insurance?
-
What are the requirements for each policy? For instance, what
if you miss a payment or your account is not in good standing
at the time you file a claim?
-
Can you purchase only one or two coverage options or do you
have to purchase all?
-
What is the annual cost of the insurance, and how often can
rates increase?
-
How do you cancel the policy?
If you decide to purchase credit card insurance, or
any other insurance for that matter, be sure you know exactly what
you are getting and exactly what it will cost over time.
While your case may have been covered because of your
unique situation, for most people credit insurance is expensive
and rarely pays off. I would definitely not place credit insurance
in the "need" category. An emergency savings fund for
this and other unexpected expenses is preferable in my book.
Caution: Many scams abound with people calling to
supply you with credit-loss protection from your card issuer. The
scam artist will tell you they need your card number and expiration
date to issue the insurance. Credit card loss-protection insurance
is not necessary; you are generally only responsible for a maximum
of $50 of fraudulent charges and then only if you don't report the
loss to your issuer in a reasonable amount of time.
Good luck!
The Debt Adviser, Steve Bucci, is
the president of Money Management International Financial Education
Foundation and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt advice or click
here to ask a debt question.
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