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Credit Card Insurance
7 Apr 2018

9 Things You Should Know Before Taking Out Credit Card Insurance

If you have a credit card, you’ve likely been approached about buying insurance. Like other types of insurance, credit card insurance helps protect you in the event of a disaster.

But is it as beneficial as it sounds?

From big-ticket items like cars and homes to unusual examples like bed bugs and lotteries, you can get insurance for just about anything. In some cases, insurance is absolutely necessary (and even required).

You don’t have to have credit card protection. Some people purchase it simply to gain peace of mind. Others purchase it unknowingly when they sign up for a card.

The big question is: do you really need it?

These nine facts about credit card insurance can help you determine if it’s worth its value or a waste of money.

What Is Credit Card Insurance?

This type of insurance is an additional service that protects you in the event of disability, unemployment, or death.

The coverage is optional, meaning it’s not automatically included in your card benefits.

Most companies will offer some type of insurance once you sign up for a card. It goes by many different names as each company has their own version of this protection.

What It Covers

There are four different types of credit card protection insurance. Each one offers its own set of benefits and requirements.

Job Loss

This type of insurance covers your minimum monthly payment in the event of a layoff. Individuals who were terminated don’t usually qualify for insurance benefits.

Charges made after the job loss are not protected by the insurance. The time to receive benefits is limited, so you should check with your provider for more details.

AD&D

Insurance will pay your entire card balance in the event of your death.

Disability

Similar to the job loss terms, insurance will cover the minimum payment in the event of a medical disability. Charges made after the fact are not included in the insurance benefits.

Illness

Critical illness qualifies for insurance benefits. The terms are generally the same as those for disabilities and involuntary job loss.

Keep in mind that each company may have additional requirements to fulfill with each type of insurance. For example, you may only receive benefits for specific medical illnesses.

Before signing up for credit card protection insurance, read the fine print to make sure you understand the terms.

How Much It Costs

In most cases, you can get card protection for pennies on the dollar. The cost will vary between companies, but it’s usually around $0.75 to $1.50 per $100 of outstanding credit.

For example, if you’re paying $1.00 per $100 for card insurance and you have a balance of $500, then your insurance will cost you $5.00 that month.

Because your outstanding credit fluctuates each month, so will the price you pay for insurance.

Also, note that insurance is an ongoing bill. Just like your car insurance or homeowner’s coverage, it’s not a one-time purchase.

The cost could add up significantly over time. There’s also no guarantee you’ll ever use it.

Canceling card insurance could also cost more than you anticipate. For example, if you pay for your insurance annually, you may be protected by your next billing date rather than receive a pro-rated refund.

Questions to Ask When Considering Credit Card Protection Insurance

If you’re considering credit card insurance, you want to make sure it’s a good investment.

First, consider the type(s) of coverage you’re most likely to use.

Also, think about your other existing insurance policies and what they cover.

For example, life insurance can be used to pay off credit card debt when you pass away. Some health insurance policies may also help with minimum payments in the event of a serious illness.

Ask your company about events the insurance does not cover. Some questions you should answer:

Is my spouse included in the protection?

Is there a waiting period before benefits kick in?

Do I have a time limit to file the claim?

Can I cancel the policy, and how do I cancel?

Knowing these things upfront can help you avoid costly mistakes.

When Should You Buy Credit Card Insurance?

Credit card protection makes sense when you’re at risk of an illness, disability, or job loss, and have no other insurance to help you cover your minimum payment.

If you’re afraid your family will be unable to pay your credit card balance after you die, consider card protection services.

When Credit Card Insurance Doesn’t Make Sense

If you have other means to cover your expenses in the event of a job loss, disability, or critical illness, then credit card protection will likely be an unnecessary bill.

Remember, in many cases, the insurance only pays the minimum balance. It won’t help you pay off your balance because you will be accruing interest during this time.

How to Tell If You Already Have It

If you’re not sure if you already have credit card insurance, you can contact your company and ask. It’s possible you signed up for insurance at some point without realizing it.

Or, you could check your monthly statement. Insurance will appear as a separate charge.

Make sure you check a few months’ worth of statements. Some companies bill this fee quarterly or annually.

How to Get It

If you decide that card insurance is right for you, reach out to a provider and ask about your options.

They can give you pricing and policy information to help you decide what you need.

Final Question: Do You Really Need It?

Many people who have card protection eventually realize they don’t need it. However, that’s not the case for everyone.

It’s an additional expense in either case, and there’s no guarantee you’ll ever use it.

If you have a stable job and decent health, credit card insurance won’t help you much. If the opposite is true, you should collect all the information necessary to make an informed decision.

For more financial wisdom and insight, check out our blog!