If you have a credit card, you may have been asked by the company if you would like to add credit card insurance. Credit insurance can be beneficial in some cases and an unnecessary cost in others, depending on your situation and how much insurance coverage you already have. This is the basic information to consider when trying to determine whether purchasing credit card insurance is worth the cost.
What is Credit Card Insurance or Payment Protection Insurance?
Credit insurance – sometimes known as payment protection insurance – is an insurance policy tied to a specific loan or credit card account. The insurance will pay off the outstanding balance or payments on your behalf if you are unable to do so.
5 Steps to Consider Credit Insurance from Your Credit Card Company
Here are 5 steps to help you understand the coverage your credit card company offers and what it covers so you can determine whether you should add credit card insurance to your card.
1. Gain Knowledge About What Credit Card Insurance Is
When your credit card company contacts you to offer credit card insurance or balance protection insurance linked to your credit card, they may be working with an insurance company to provide a special package for cardholders that will protect several different things.
Four main types of credit card insurance:
- Credit life insurance pays off the debt you owe if you pass away. The beneficiary of the policy is the credit card company. If you have sufficient life insurance to cover your debts in the event of your death, consider this before spending more money on this additional coverage.
- Credit disability insurance protects your credit rating by making the minimum monthly payment if you become medically disabled. Payments are typically made for a limited period, and any purchases made after the disability may be excluded.
- Involuntary unemployment insurance will pay the minimum monthly payment if you are laid off or downsized, and again, no purchases made after involuntary unemployment will be covered.
- Property insurance on credit is used to secure property you may have used to secure a loan. This is typically not part of credit card insurance but may be more common in personal loans where your personal property is used as collateral for the loan. It’s important to understand the term, and also to realize that if you have homeowners insurance or personal contents insurance, that property is likely already covered there.
2. Understand How Credit Card Insurance Is Marketed
Now that you know more about credit card insurance, it’s important to understand how it is marketed or sold to consumers. Companies typically ask you to purchase it when signing up for credit or when signing up for a later marketing offer. When purchasing credit card insurance, it is often offered for free for a limited time, and after that specified period, you will begin receiving bills because accepting the trial means automatic enrollment in the program (until you cancel it).
Unlike many insurance plans, credit card insurance can start with a verbal agreement and does not necessarily require a signature, so be sure to pay attention to what you agree to or fill out on your credit application.
3. Decide If Credit Card Insurance Is Right for You
Considering your current and future financial needs is the first step in determining whether you may benefit from credit card insurance. If you already have sufficient life and disability insurance policies, you may have enough insurance coverage in those policies to cover your credit accounts in the event of your death or disability. Learn more about how to determine the level of insurance coverage you need here.
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Credit card insurance is not as cost-effective and flexible as traditional life and disability insurance. For example, if you have multiple credit cards, you will need to enroll in a policy for each of those accounts. With all those monthly policies, you might be able to purchase a traditional life and/or disability policy at a lower cost and receive greater coverage, not to mention that after your credit balance is paid off by a traditional policy, your remaining amount will go to your relatives.
4. Questions to Ask Before Buying Credit Card Insurance
If you decide that credit card insurance is right for you, it’s important to know more about the policy you’ll be getting. Ask about what is excluded from the policy. If you purchase a credit card insurance policy that includes all four types of insurance (life, disability, unemployment, and property), make sure you are not paying for something you don’t need. For instance, if you are not employed at the time of obtaining unemployment insurance, you’re paying for coverage you won’t use. Be wary of age restrictions, for example, with credit life insurance. Ask about waiting periods and pre-existing conditions. For example, if you think you might lose your job in 6 weeks and this is why you are taking insurance, be aware that the policy may have a waiting period (sometimes excluding incidents that started 6 months before and after the policy). Time limits and waiting periods can lead to claim denials.
Ensure you thoroughly review all the requirements before accepting the policy. If the person you are speaking with cannot answer your questions, ask them to have someone else call you back who can. Do not purchase a policy that you do not understand.
5. Know if You Can Easily Cancel Credit Card Insurance
Most credit card insurance starts with a free trial period. Before the free trial period ends, you should decide whether you want to keep the policy or not. Unfortunately, after the free trial period has ended, it may be difficult to cancel credit card insurance. Contact your credit card company if you are unsure how to cancel and get the proper instructions.
Alternatives to Credit Card Insurance
Credit card insurance is not mandatory, and you should not feel pressured to purchase it. Credit card insurance coverage is limited because it only helps you pay off a limited amount of debt with the creditor in question. If you are truly concerned about covering credit card costs due to disability, death, or job loss, it might be financially wiser to consider other options that allow you more control over where your money is spent if you need assistance. Credit card insurance is limited to paying off a limited amount of debt with the creditor in question. You might consider learning more about term life insurance or disability insurance, which will give you greater control over your finances.
Source: https://www.thebalancemoney.com/considering-credit-card-insurance-2645595
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