Credit Card Insurance

...It Pays to Ask Questions Before Paying for Credit Card Insurance

Do you really need credit card insurance? If so, are the card insurance programs being offered to you a good deal? The answers depend on which of the many forms of credit card insurance you're considering... and who's offering it.

There is, for example, insurance to pay your credit card bills if you become disabled or you lose your job. This type of insurance may be a good thing if your other potential sources of income wouldn't be enough to pay your monthly debts. But, there may be a waiting period before you'd receive your first benefit payment, and the insurance may only pay the minimum card payment each month (up to the policy coverage limit). So, unless you are disabled or out of work for a very long time, the cost of the premiums could easily exceed any monthly benefits.

Likewise, insurance that will pay off card balances if you die may make sense only if you have a lot of credit card debt and little or no other life insurance. In general, you might be better off insuring yourself against income loss or death by purchasing regular disability or life insurance instead of credit insurance.

Some credit card protection plans are basically notification services—they'll contact your card issuers if your cards are lost or stolen and arrange for new cards, or maybe they'll periodically send you copies of your credit report so you can review it for accuracy. This may be a useful service for some people, but it offers nothing you cannot do yourself with a minimum amount of effort. If you think you want this kind of service, you should first ask your card issuers if they offer the same service more cheaply or at no cost.

Some telemarketers are aggressively selling insurance that covers the fraudulent use of your credit card. Do you really need that kind of credit card insurance? Most experts say no. Federal law already limits your liability to the first $50 of fraud losses per account, provided you make a reasonable effort to notify the card issuer of any lost or stolen cards within a reasonable period of time. In many cases, the issuer will waive the $50 requirement. If your card issuer still insists on the $50 payment, check with the company that insures your home, because your existing policy may cover that loss.

Seitz also cautions you never to give your credit card number to anyone selling credit card loss protection insurance over the telephone, because you may be dealing with a con artist who could make unauthorized charges to your card.

If you are considering credit card insurance, you should ask:

  • Why do you want this type of protection?
  • What benefits will you gain from it, and how much are you willing to pay?
  • Does the extra insurance make sense for your spending and borrowing habits? (For example, if you only charge a minimum amount, what would be the purpose of buying insurance to pay off your credit card bill?)
  • Also, are you sure you're dealing with a legitimate company? If you have doubts about an insurance plan or the company offering it, contact your state government's insurance commissioner or office of consumer affairs.