Do You Really Need Credit Card Insurance?

by Neal Frankle, CFP ®

Credit card insurance claims to make your credit card payments for you if you are unemployed or encounter some other financial hardship.. Many card companies push this coverage and pitch you on it when they send you your monthly statement. Is it a good deal?  Let’s find out together.

How Much Does Credit Card Payment Protection Cost?

What you pay for credit card payment protection depends on your balance.

It is common to pay about $0.85 for each $100 you owe. So if you have a balance of $1,500 on your credit card your total cost each month will be $12.75. In many cases, the cost is added to your balance, and you will pay compound interest on that cost as well.  (Of course, if you don’t carry a balance, you can get this protection for free which is pretty cool.)

Is It Worth It?credit card insurance

The main problem with credit card payment protection plans is that you may not get the coverage you actually need when you need it. Read the fine print. Then read it again.

Many of these plans sound great but when it’s show time, they don’t deliver.  That’s because they only pay up under restricted conditions. You might have to be unemployed for a long period of time before the coverage kicks in.  Or you might only be covered for a limited time — even if your financial trouble lasts longer than that.

And this coverage typically only covers your minimum monthly payment. That’s certainly better than a sharp stick in the eye but it’s not a comprehensive solution Pilgrim.

A Better Alternative

Rather than paying for credit card insurance or payment protection why not make sure you have the right disability coverage and emergency fund?  Those two insurance products will provide far more protection – and peace of mind.

Unemployment and disability are the greatest risks to your financial stability.  If you become a victim of either problem, you’ll have more problems than making your minimum credit card payment.  That’s why you need to focus on these issues with a big-picture view rather than just looking at your credit card.

Credit card protection plans are wonderful for credit card companies; the collect a premium, charge you high interest for it and it protects THEM – not you.  Shame on those credit card companies for selling such a lousy product.  Don’t fall for it Pilgrim.

Do you have credit card insurance?  Why?  Has it ever paid off?

 

Glen Craig publishes Credit Card Smarts, where you’ll learn about the latest card as well as the best ways to use your credit.

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{ 2 comments… read them below or add one }

moneystepper November 25, 2014 at 10:43 AM

Exactly. Credit cards are defnitely something everyone should self-insure.

If you can’t afford to pay down your credit cards, you shouldn’t be using them.

If something terrible happens, then you are right – that is what your emergency fund is for.

Unnecessary “Insurance” is a huge annoyance for me. The industry almost makes you feel irresponsible for not insuring everything, without any consideration of whether the premiums are justified by the cover obtained and the risk of disaster.

Reply

Neal Frankle, CFP ® November 30, 2014 at 12:10 AM

Thanks Moneystepper! I agree completely. I really don’t like it when the financial industry “creates” a need for something that is just a waste. How can these people sleep at night? Maybe I am naive….

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