Credit card insurance works best for the credit card companies

The credit card business is quite a profitable one and it has become even more profitable now that Congress has made it harder for debtors to file for personal bankruptcy. The companies make a lot of money off of the high interest you pay, but they also make additional money from extra services that they offer. One of these services is credit card insurance.

The notion is simple - by paying a small monthly premium, you are “protected” against certain types of misfortune that may affect your ability to repay your credit card bill.

Typically, there are four different types of credit card insurance:

• Life insurance - This will pay off your balance completely should you die before you pay it off. You may state a beneficiary for this policy; the balance will be paid off automatically if the beneficiary is the credit card company.
• Disability insurance - This will pay your minimum payment for a specified time should you find yourself disabled and unable to work.
• Unemployment insurance - This will pay your minimum payment for a specified time should you find yourself temporarily without a job.
• Property insurance - This will reimburse you for certain items that you have purchased with your card should they be destroyed.

These sound like good things, and they are. But not all companies offer policies that cover all such events. Worse, in event of a job loss or disability, the policies only make the minimum monthly payment. As paying the minimum will hardly put a dent in your overall balance, the typical user will find that these policies are not much help. Credit card companies have the final say in whether or not the disability or unemployment polices will go into effect, and they will not cover charges incurred after you file a claim to collect them. They will only make the minimum payment towards balances that applied before you lost your job or got hurt.

Before you consider buying such insurance, you should look at the overall coverage. Does it cover all of these issues? How much does it cost? How likely are you to need it? For most customers, the only worthwhile payoff on such a policy comes if you should die owing money. If that’s the case, you can probably cover the debt better by taking out term life insurance on yourself. It will, depending on your age and health, probably cost a bit more than the monthly cost of the credit card insurance, but it will insure your life for a lot more money. And in addition to protecting your credit card debt, you can also protect your family. Alternatively, you should be able to pay your outstanding balance out of a savings account.

Anyone who has such concerns and is considering purchasing insurance through their creditors would be well advised to consult with an insurance company first. You might find that term life insurance is a better buy overall.

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