Is Credit Card Payment Protection Insurance Worth It?

What Credit Card Protection Insurance Covers#

Credit card protection insurance is a type of coverage that protects credit card purchases in the event of the cardholder’s death, medical disability, or unemployment, and it is typically available for an additional monthly fee. It can also cover damaged items purchased with the credit card.

Why the Coverage Is Narrower Than It Sounds#

With credit card protection insurance, the policy simply covers the minimum payment on the credit card, unlike a traditional disability policy, which offers freedom in deciding which bills to pay with received funds. A policy also covers only one card at a time, so a person who wants coverage for multiple credit cards needs a separate policy for each card.

What Happens If a Claim Is Approved#

If triggered, credit card protection insurance could allow a cardholder to forbear credit card payments and suspend interest for up to two years. That pause applies to the covered card and only to the minimum payment on that card.

How Can You Tell If You Already Have Credit Card Insurance?#

You may have been paying for credit protection insurance without knowing it. These policies typically don’t require authorization beyond a verbal agreement: the coverage doesn’t require a signature and can be purchased over the phone. There are two ways to find out:

• Call your credit card company and have them check to see if you’re signed up for one of their protection policies.
• Check your bank statements. Credit protection insurance will be listed as a separate payment. Be sure to check several statements, as these charges can be billed quarterly or annually and may not be visible on a particular month’s statement.

If you notice these charges and wish to cancel the insurance policy, call your credit card company.

What It Actually Costs#

Credit card protection insurance is typically sold as an added monthly fee on top of a card’s regular terms. Cambridge Credit Counseling does not have a standard percentage figure to share here, since fees and terms vary by card issuer and policy. Anyone considering this coverage should ask the issuer directly for the exact monthly cost and read the policy’s exclusions before enrolling.

The Real Cost of Carrying a Balance#

Do You Really Need Credit Card Insurance?#

There is a good chance that you’re already covered and don’t even know it. If your employer has offered you a life insurance policy or short-term disability policy, you may not need any additional credit card protection. In the same way, your homeowner’s insurance policy may take care of any damaged goods that you purchase.

If you don’t have these, there are still other options that don’t cost quite as much. A traditional disability policy may actually cost you less than credit protection insurance. Another option is self-insurance: by putting money away in an account of your own, you can have funds to draw from to make your credit card payments if you become unemployed or disabled.

Alternatives Worth Considering#

Paying down part of a credit card balance reduces the amount of debt on which interest is charged, so even a partial payment lowers future interest costs. One of the most significant benefits creditors typically extend to clients of a consumer credit counseling agency such as Cambridge Credit Counseling is a reduction in credit card interest rates. Consumers enrolled in a Cambridge Credit Counseling Debt Management Plan make one monthly payment to Cambridge, and Cambridge sends payments to each of the creditors included on the plan.

Know the Tradeoffs#

A debt management plan with Cambridge Credit Counseling may adversely affect your credit, though the effect may be temporary as you remain committed to making monthly payments through your Debt Management Plan. Nonpayment of debt may lead creditors to increase finance and other charges or pursue collection activity, including litigation. Any option for managing credit card debt, including insurance or a debt management plan, comes with tradeoffs worth understanding before signing up.

Consumer Warning: Credit Card Protection Fraud#

Some agencies illegally attempt to exploit your fear of credit card fraud. It starts with a call from a telemarketer claiming to be a representative from your bank, who says that if you are a victim of fraud, you will be held liable for the entire amount of fraudulent charges on your credit card. These telemarketers are thieves themselves, and though what they say sounds good, it is completely false. Under the Fair Credit Billing Act, your responsibility for unauthorized charges is limited to $50.00.

The callers typically recite the first 4 numbers of a credit card account number and request that the consumer provide the rest of the numbers, which the callers claim not to have for security purposes. Thinking that these telemarketers are actually representatives of their own credit card company, many consumers recite the remainder of their account numbers. Many of these scam outfits were charging for these unneeded services, and even when a consumer stated they were not interested, some of these companies would put the charge on the victim’s credit card anyway, since they now had the full account number.

• Never give out personal information over the phone unless you initiated the call and are familiar with the institution.
• If a solicitor calls and states that they are calling from your bank, take down their name and number and then contact your bank to see if the call was authorized.
• Review your statements each month for unauthorized charges. If you come across one, do not pay it. Dispute it. Your creditor will inform you of the proper procedures to follow. Interest will accrue and payments will be due on whatever part of the balance is not in dispute.

What to Do Next#

Cambridge Credit Counseling is a nonprofit agency that offers credit counseling, debt management plans, housing counseling, student loan counseling, reverse mortgage counseling, and bankruptcy counseling. Consumers weighing credit card protection insurance against other options can contact Cambridge Credit Counseling to discuss which approach fits their situation.