Most credit card companies offer credit card protection plans. It’s insurance that’s meant to cover your minimum credit card payment in the event you become disabled and unable to work for a certain period of time. Many people have credit card protection coverage and don’t even realize they’re paying for it. Have you fell victim to that? Let’s do some investigating to find out.
What is Credit Protection Insurance?
Credit protection is offered by credit card companies, car dealers, banks, stores, and other lenders. The average cost for insurance is around 75 cents to $1 per $100 credit card balance, per month. So if you’re paying $1 per $100 and are carrying a balance of $1000, you’re paying $10 a month toward credit protection – do that all year and you’re looking at an extra $120 per year.
There are different types of credit protection plans, including involuntary unemployment insurance, which will cover your minimum payments for a certain period of time if you are fired from your job; property insurance which will pay to replace or fix items you bought on credit card that become damaged or stolen; and credit life insurance which will pay off the debt entirely if the borrower dies before it’s paid.
How Credit Protection Works
Most policies feature voluntary enrollment – although a large percentage of people are paying for credit protection plans without realizing it; and members can cancel any time although you may need to deal with a pushy sales person when you try to cancel and they try to keep you as a member. The policy fee is calculated based on how much you owe on your card. The typical benefit for people who put in a claim on their policy is the minimum monthly payment, and the credit rating of the individual making the claim on their protection plan is maintained during the disability or unemployment period.
Is Credit Protection Worth the Cost?
Consumer Reports claims that credit insurance sales exceed $6 billion annually. Is it worth the cost? Companies offering the protection plans claim that it’s well worth the expense for people who carry large amounts of debt. Critics of protection plans claim that it’s just another way for credit card companies to make money off consumers, and that the level of protection offered is minimal.
The common issue with credit card protection plans is that it is reportedly difficult to put in a claim and receive benefits from your plan. The plans are rarely effective for self employed individuals or people who are disabled before they apply – but many people report signing up for protection plans without ever being asked about their employment status or disability status. These people pay for credit card protection plans that they’re not even eligible to put in a claim for.
Most life insurance policies would offer credit card insurance (take over your minimum payments or even pay off the balance completely depending on the policy and the nature of your illness or injury); along with other benefits which makes them a better choice for insurance. People with lower incomes rarely have life insurance though, and so the argument is that credit protection plans give everyone the opportunity for insurance.