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Making purchases with your credit card can feel a little risky. With information being transferred electronically and a variety of different ways your card can get stolen, you should think carefully about how to keep your data safe and whether extra protection is needed.

Major credit card issuers will often provide a slew of different credit card protections: return protection will allow you some added time to change your mind about things you wish you hadn’t purchased; purchase protection will keep your account covered when it comes to any damaged or stolen purchases; price protection will allow you to retroactively price match; and $0 fraud liability protection will keep you safe from paying for unauthorized charges. These benefits are almost always complimentary, so of course they’re worth the $0 price tag. Some card providers and travel credit cards even offer additional free benefits, such as rental car insurance, travel delay protection and extended warranty protection.

While it’s nice that card issuers are holding up their end of the bargain in case of an event like the Capital One data breach, you should give careful consideration to the pros and cons of credit card payment protection insurance. This add-on is designed by issuers to help you if you’re ever in danger of not being able to make your payments. Its true cost is dependant on your financial situation, so read on to determine whether the price is right for you.

What is credit card protection? 

“Credit card payment protection insurance” goes by multiple (perhaps more common) names, so don’t let your card issuer confuse you with a sweet-sounding pseudonym. You may see simpler terms like “payment protection”, “protection insurance”, “credit safeguard” or “credit shield”, but the end goal of the benefit is the same regardless of the label. This insurance is offered to cardholders to provide security in cases where unforeseen circumstances could lead to missed payments.

If unemployment, disability or injury leaves you struggling to make your monthly credit card payments, protection insurance can put your payments and interest charges on hold for as long as two years. In cases of death, your credit card balance will be cleared. Of course, you’ll have to pay a monthly fee to reap these benefits, but protection insurance could be a saving grace if you were to lose your job or become incapacitated. The full terms of the agreement will depend on your provider, but understanding the general process will make your decision easier when the time comes.

How does it work? 

If you make the choice to purchase protection insurance, it’s in your best interest to know the ins-and-outs of the plan. The structure of the fee you’ll incur will depend on your credit card issuer and the actual price you pay may be determined by your monthly spending. The most common way this charge is calculated is by attributing a small amount (less than $1) to every $100 you spend with your card. The price may seem small when it’s pitched as $0.85 for every $100, but things can start to get expensive when you’re adding these fees every month.

You should read the full terms of your plan to be sure that you’re covered for any specific situations you’re trying to prepare for, but the typical protection insurance plan can be a major help in times of need. In most cases of unemployment or medical disability, a protection plan will set you up with:

  • Your credit card provider reporting your status as “current” to credit bureaus to keep your account and credit score in good standing
  • Suspension of interest charges (typically 12 to 24 months)
  • No need to make minimum payments (typically 12 to 24 months)

If an emergency were to arise, you’d have to contact your credit issuer to request the aid of the plan. Your minimum payments will be covered for a period of up to two years, but any other charges will require you to pay off the balance over time. In all likelihood, you won’t have to repay your issuer for the minimum payments — the added fee you’ve paid is typically used to fund the cost. Plus, you won’t need to worry about the negative consequences of missing a credit card payment. Reaching out to your credit card company certainly won’t be the first thing on your mind when facing a major life event, but in time it’s a necessary step in order to save your creditworthiness and your bank account.

Pros of credit card protection

  • If you had a major change in your ability to generate income due to an injury, accident or sudden loss of employment, you won’t have to worry about making minimum payments for an extended period of time
  • Your credit card account balance won’t be at risk of quick, unwanted growth due to compounding interest charges
  • Reassurance of financial health for any children or other family you may currently provide for
  • There’s no need to stress about your credit score taking a major hit in the event you lose your job or are medically disabled
  • In the worst case scenario, your credit card balance will be completely wiped out if you were to pass away

Cons of credit card protection

  • Your already pesky credit card bills will be slightly more expensive each month
  • You could still be accumulating debt if you were to have an issue with your income —  your minimum payments are covered, but any purchases will still be your responsibility
  • The only way your added expense is worthwhile is if the worst is to occur
  • A protection plan is per card, so you’d need to add the extra payments to each credit card in order to reap the benefits across all your credit accounts
  • Your card provider may be very particular in their wording of your agreement and may not be fully-inclusive of all emergency situations
  • The more you spend on a monthly basis, the more expensive the insurance plan becomes
  • If an event occurs that is a serious long-term issue, your coverage will still only last two years maximum

How to decide if credit card protection is right for you

Assessing your own lifestyle is the only way to know whether you should sign up for a credit card protection plan. For the majority of credit cardholders, it’s not an advised add-on — but that doesn’t mean there aren’t times where you should pay out for the extra protection.

The first thing to consider when weighing the decision is how much money you have in the bank. If you’re fortunate enough to have savings to keep you afloat for a year or two, there’s no need to consider the insurance plan. It’ll only help you for a limited window of time, so if you can handle emergencies through your savings account you shouldn’t elect to pay for the insurance. You’ll also want to evaluate your savings in relation to your family, job security, debt situation and overall health — there are scenarios where you may need the costly benefit.

In any case where you know a short-term crisis could cause you or your family serious turmoil, you may want to consider paying for credit card protection insurance. For anyone working a job with high turnover or a heightened chance of layoffs, it could be a worthwhile investment. Similarly, those with extreme hobbies that put them at risk of injury may want to think hard when their credit issuer offers their plan. In the end, you have to consider: if you were to fall sick or be laid off, would minimum payments dismantle you financially? If so, maybe credit card protection is necessary, but be sure to know the terms of the agreement before signing the dotted line.

Credit card protection scams

As with anything you sign, you need to read the fine print and do your research on the company beforehand. Third parties will occasionally try to scam consumers into phony protection policies by making promises to keep your card safe from fraud, protect your private information or fulfill a variety of other empty guarantees. These can be a real gamble with your credit card and may lead to the loss of money or your card account, so it’s essential to know the common signs of a scam.

Keep an eye out for the terms “fraud protection”, “hackers”, “computer bugs” or anything of the sort. The scammer companies will include these words to make their insurance plan seem legitimate and intimidate you into an irresponsible agreement. Often times, these deceitful companies will reach out under the alias of your credit issuer’s “security department” to influence you as well.

As a general rule for anytime you’re contacted by someone out of the blue, don’t pass over any personal or credit card information. Be responsible with your financial choices; and if you need help from your credit card company, reach out yourself. Sometimes protection is needed when it comes to credit cards, but take your time and don’t rush into any plan you wouldn’t benefit from — your savings account may thank you.