Do I need credit card insurance?

The question of whether a customer needs credit card insurance is a complicated one. Some people feel that putting a plan in place that will make the minimum payment on a credit card account when the cardholder is unable to do so is a good idea, while others content that the cost of coverage is too high to be a good value. Each person needs to weigh the cost of coverage against the benefits they will receive by purchasing this type of protection.

Types of Credit Card Insurance Protection Offered

Unemployment credit card insurance coverage comes into effect if the cardholder becomes unemployed. This is a common form of insurance offered by credit card companies to account holders. Some cardholders may find when they check their monthly statement that they have been enrolled in the program without their knowledge.

The premiums for this type of coverage are set at a certain rate for each $100 of the account balance. A person who pays of his or her balance in full each month won’t be charged any insurance premiums, while an individual who carries credit card debt will have this cost added to their account along with interest charges and other fees.

Credit card companies may also offer life insurance coverage so that the balance owing on the account is paid off if the cardholder dies. At first glance, this may appear to be a good idea, since a person may not want his or her family to be responsible for paying debts out of his or her estate.

Read the Fine Print!

Before making a decision about whether to buy credit card insurance, it’s important to consider all of the facts. In the case of unemployment credit card insurance, the cardholder should find out whether he or she is covered for involuntary unemployment only (being laid off or fired) or if the company will make payments if the individual quits a job.

The insurance will likely only make the minimum payment if the cardholder is unemployed. This will keep the credit card account in good standing, but won’t do much to pay down the debt.

In the case of life insurance coverage, an advantage is that anyone who wants it can be covered. The insurer will offer protection to anyone, regardless of age or health situation. The disadvantage is that when a claim is made, the proceeds are paid to the credit card company. A better option may be to buy a personal life insurance policy that the beneficiaries can use for whatever purpose makes sense to them, including paying debts.

The cost of coverage is a factor in deciding whether credit card insurance is the right choice. If the premium is based on the amount that is on the credit card account, take a few minutes to determine how much the fee is per month. Then multiply it by 12 to find out the annual fee, which may work out to hundreds of dollars per year.

Consider All of Your Options

Since credit card insurance coverage can be cancelled at any time without a penalty, it can be used to give a level of protection to consumers who don’t have a cushion of savings available to them if they lose their jobs. A better solution may be to start a savings plan to protect the consumer in the event of job loss. Once a certain level of savings has been reached, the credit card insurance coverage can be cancelled.

A person who has life insurance coverage already in place may not need additional credit card insurance coverage. For someone who has been turned down for life insurance coverage, arranging for this type of protection from the credit card company means that the debt will be paid off if the cardholder dies.

Ultimately, the decision about whether someone needs to arrange for credit card insurance is an individual one. Each person needs to consider their personal financial situation to decide whether this type of coverage makes sense to them. For people who are concerned about maintaining their credit record if they lose their job, getting unemployment credit card insurance may make sense. Life insurance coverage on a credit card means the debt is paid (up to the policy limits) if the cardholder dies.

Part of considering your options is to choose the right credit card from the outset. The credit card Chaser tool on our home page can help you. It’s free to use and you can click on it to start comparing your credit card options today!

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Disclaimer: This content is not provided or commissioned by American Express, Visa, MasterCard, Discover, or any other credit card company or issuer. The opinions expressed here are the author's alone, not those of any credit card company or issuer, and have not been reviewed, approved or otherwise endorsed by any credit card company or issuer. Credit Card Chaser may be compensated through various affiliate programs with advertisers. As always, Credit Card Chaser is an independent website commmitted to helping people research credit card offers and find the best credit card!