When I think, “Credit cards,” I think, “Plastic.” When I think, “Plastic,” I think, “Plastic surgery.” It’s not such a stretch—some people need help as drastic as plastic surgery to manage their spending habits and prevent credit card fraud.
Have you heard of credit card insurance? It’s a type of insurance that protects the cardholder in the event that he or she cannot make payments. There are other types of credit insurance, too, such as for auto loans and mortgages. Check with your bank to see if it offers credit card insurance.
Do You Need Credit Card Insurance?
As with all kinds of insurance, the answer to this question depends on you and your particular financial needs.
Outstanding debt can be a burdensome worry if you’re facing the possibility of a loss of income. The first thing you should do is review your financial needs, on your own or with a trusted financial professional.
I never liked math much in school, but sometimes simple math is a huge consideration in the insurance decision-making process. If you’re exploring credit card insurance options, find out the rate and how it’s applied, and then determine what you’ll have to pay. For example, if the rate is $.82 against each $100 of debt, and your monthly balance is $7,500, you’re looking at $61.50 per month, or $738 annually. How does that compare to your monthly minimum payment?
To make it worth your money, credit card insurance should provide coverage for the following scenarios:
- You become disabled.
- You die. (In this case, the coverage would be debt cancellation.)
- Property purchased on credit per the terms of agreement is destroyed. (Again, you need debt cancellation in this case.)
- You are involuntarily unemployed.
With regard to disability or death, if you’ve secured disability and life insurance policies, it’s possible you already have the insurance coverage and financial resources to address your debt obligation. (If you’ve read my previous blogs, you know I’m a proponent of exploring life insurance and disability insurance as prudent additions to your financial portfolio.)
Again, it’s about the math. It may be more cost-effective and allow you more flexibility to purchase life and disability policies rather than credit card insurance. Research your options with the credit card company and with your financial planner and/or insurance professional.
If You Do Buy Credit Card Insurance
Inquire about exclusions.You may have reasons for buying credit card insurance that prevent you from getting the coverage you want. For example:
- You are buying it to cover employment and are currently unemployed. Your unemployment may be considered a “preexisting condition.”
- You are buying it because you are 82 years of age and haven’t been able to pay off your debt. You don’t want to burden your loved ones with the debt obligation, but the coverage may not extend to persons over the age of 80.
Be wary of free trials. You may want to test-drive the insurance with the free trial that many of these plans offer, but make sure you fully understand the requirements and cancellation policy of the free trial.
Understand your options. Closely examine the plan’s cancellation requirements and flexibility.
Remember, read the fine print and make sure whatever credit card insurance policy you buy is cancellable on demand. Then, do your due diligence to make sure that the company offering the policy (and standing behind the policy) is legitimate. Google the name of the insurance company and the word “complaint” to see what kind of experiences consumers have had.
Linda Rey is a licensed insurance agent at Rey Insurance with a broad spectrum of expertise in life, accident, health, property and casualty insurance as well as retirement planning and college funding strategies.