Master Your Card

I was looking over my credit card bills the other day and noticed that I’ve been paying for credit insurance…something I never signed up for to begin with. When I called to ask about it, the representative informed me they had received verbal confirmation from me a few months back when I renewed my card. I most certainly did not give any kind of verbal confirmation to add that to my account. It was a back and forth discussion before the charges were reimbursed, but it got me to thinking. Is credit insurance really worth the money?

My philosophy on insurance, in most cases, is that it’s always better to have too much than not enough. However, I don’t think insurance on your credit cards is necessary.

First of all, the insurance on your credit cards is limited and it only applies to that specific card. If you have multiple cards, then you would need multiple policies just to ensure that you’re fully covered. That can get fairly expensive when it may be cheaper just to up your existing policies elsewhere. But, first let’s look at the different types of insurance available through your credit cards.

Credit Life Insurance

This type of insurance will pay off the balance of the card at the time of death. But, be very careful that you read the fine print because only certain types of death will apply. This is usually an accidental death insurance and does not apply to pre-existing conditions; however, in some cases that’s not true. But, like most other insurance policies, they do rule out suicide and war deaths.

Credit Disability Insurance

This covers your minimum payments for a specified period of time while you are disabled. There are usually all sorts of rules with this, as well, so it’s best to read everything beforehand. In addition, there are time restrictions involved before the insurance pays out, so you’ll want to make sure that you can make your payments satisfactorily until the insurance payments kick in.

Involuntary Unemployment Insurance

This only applies to those who were laid off…if you were fired or quit, this doesn’t count for you. But, as with the other two, there are restrictions. You have to show proof that you’ve applied for unemployment benefits and that you are actively looking for a job. In most cases, if you find a part-time job, you lose the benefit because you must be 100% unemployed to receive it.

Property Insurance

This usually covers property that is damaged or stolen, if it was purchased with the covered credit card. It does not pay the card in full, only the amount of the item that is damaged or stolen.

As you have probably figured out, you may already have insurance to cover most of these events. Life insurance is usually much cheaper to get on it’s own, most employers offer a short- and long-term disability plan so you would be covered there, and homeowner’s or renter’s insurance should cover your property. The only one you may not have an insurance plan for is the involuntary unemployment, but if you’ve listened to me at all, hopefully you have an emergency fund for this. Hint, hint.

It’s important to note that almost all credit card companies offer some form of these protections with their accounts. In many cases, the credit card companies will really push the product because it’s very profitable. Even though many consumer’s may carry the product on their cards, those same consumer’s may find that it is a hassle to make a claim and may never use it.

The burden of proof falls to the consumer in matters of proving a claim. If you carry the insurance on your credit card and make a claim, you’ll be required to provide medical documentation for your disability, to include reports from the doctor and copies of the tests and diagnosis. I’ve already mentioned that you’ll have to show proof of looking for a new job with involuntary unemployment. In either case, the period for which this insurance is needed tends to be short-term so many people don’t bother with the hassle when they’re only going to get the minimum payment out of the deal. That’s why the product is so profitable for the credit card companies.

But, something else to consider is the time frame it takes to make these insurance payments. If you file a claim, very often it can take a while to process, which means that by the time it’s posted to your account, late fees and other charges could have been assessed. You’re still responsible for the late fees, and oftentimes, this can cause your interest rates to increase or your limits to decrease.

Should You Carry the Insurance?

This is largely a matter of personal preference and what makes you feel secure. I don’t think it’s needed in most cases because, as I said, most of us have other forms of insurance to cover these events. However, I would say that it’s important to make sure you have enough insurance across the board to cover yourself. In terms of disability, most companies only pay a third of one’s salary while they’re on disability. So, you’ll have to determine whether or not a third of your original salary is enough to cover all of your monthly expenses. If not, you’ve got the option of upping your short-term disability coverage with your own insurance company, or paying for it through your credit cards to cover those. You’ll want to look at which option is cheaper.

For myself, I have all of my insurance through my work policies, including life, short- and long-term disability, accidental death, and so on. I have enough in each category to pay my bills every month, or pay them off in full should something happen to me. I also have enough life insurance to pay for funeral expenses and take care of my loved ones…not that anyone is dependent on me, but still. That is what makes me comfortable.

What about you? In your opinion, is carrying insurance on your credit cards a good idea or a waste of money?