Credit insurance vs. debt suspension:
How to tell the evil twins apart

How do you tell these "twins" apart?

Debt suspension or debt cancellation offers are so similar to credit insurance that without an understanding of the differences, it's easy to mistake one for the other.

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Read the fine print
To tell which type of program your issuer is offering, read the fine print on the back of the offer thoroughly.

Both products usually carry a brand name, such as credit "protector" or credit "shield." But a debt suspension offer will never contain the word "insurance." In fact, it might declare that it is not insurance.

Insurance offers usually name the underwriter and will list terms for different states, so the solicitation is lengthier and more complex. Debt cancellation/suspension offers are uniform -- one policy for all customers -- so the description is more concise.

Can you still use the card?
Debt suspension policies will say your account will be frozen, your debt deferred, and you will not be able to use the card for purchases, cash advances or any other purpose.

Credit insurance allows the customer to continue using the card while a claim is being paid.

Consumer advocates warn that while credit insurance is a better deal than debt suspension, that's not saying much.

"I don't think insurance on credit cards makes any sense at all," says Luther Gatling, founder of Budget and Credit Counseling Services, which has offices in New York and New Jersey.

"You don't need all that peripheral stuff that's costing you money."

Comparison of these evil twins
Here are some characteristics of credit insurance and debt suspension that will help you separate the two:

Credit insurance

Credit accident and health pays the monthly loan amount if borrower becomes disabled; credit unemployment pays the monthly total if borrower is fired, laid off or takes a leave of absence; credit life pays the loan if the borrower dies; credit property pays benefits when the insured property is damaged or destroyed.

Policies underwritten by insurance companies.

Regulated by the insurance commissioners in each state, who set rate caps, benefit levels and marketing rules.

Generates revenue for states through taxes on premiums, agent licenses.

Policies tailored to meet requirements of particular states.

Costs between 60 cents and 85 cents per $100 of the total balance each month.

Customer can still use the credit card while benefits are being paid.

Debt suspension, cancellation

Pays no benefit in the event the cardholder becomes disabled or loses his job. Rather, the debt is deferred until the cardholder can resume payments or the deferment period expires. Some contracts provide for debt to be forgiven if the customer dies.

Policy is written by the bank.

Not regulated by states.

Not taxed as insurance product.

Banks write one uniform policy for all card customers, regardless of what state they live in.

Costs about the same as credit insurance.

Customer cannot use the card while payments are being deferred.