Do You Need Credit Insurance?
It sometimes seem as though an individual could go broke if they purchased insurance on everything that was offered to them. It’s no longer enough to insure your car, your home, your life and your medical bills; they want you to take care of your pets, your jewelry and yes, even your credit. But do you need credit insurance.
Essentially, credit insurance is a way to protect your credit rating if you were to be rendered unable to pay your credit card bill due to disability or job loss. It is designed to cover your minimum payment each month until you get back on your feet, or to pay the bill in full if you pass away.
Credit insurance is a monthly premium assigned directly to your credit card bill and can be cancelled at any time, but many experts feel that this particular policy is a little excessive.
You Might Already be Covered
What the credit card companies don’t want you to discover is that you might already be covered under other policies that would make credit insurance superfluous. Disability insurance, unemployment coverage and life insurance will take care of the same things as credit insurance, and for no extra cost to you. Make sure that the extra coverage will actually be beneficial before you sign up.
There Might be a Cap
Most credit insurance policies have caps that limit the amount of money covered by the insurance. If you exceed that cap, you are no longer covered, and the premium becomes absolutely worthless. If you’re going to use credit insurance, make sure you don’t go over the cap on that card and put all other expenses on other cards.
Coverage is High
If you request credit insurance from a card issuer who provides it, you are guaranteed to be approved. You don’t have to undergo a physical and your medical records aren’t checked. Because of this, credit card companies must charge higher rates because the risk they assume is more than if they provided coverage only to those consumers who meet certain criteria. You would probably be better off purchasing insurance from a third-party carrier.
You’ll Need to Provide Proof
In order for credit insurance to kick in, you’ll need to prove that you meet the criteria for job loss or disability. Many policies have stringent criteria that consumers don’t understand until they are faced with the difficulty of proving it. Not only will you have to submit documentation for your other insurance carriers, but you’ll have to worry about the credit card company, too.
Canceling Can be Difficult
If you decide at some point that you want to cancel your credit insurance, you might run into the proverbial brick wall. You have to submit the request in writing—which is often lost by the credit card company—and you might have to wait up to six months (per the insurance agreement) for the change to take effect. This means that you’ll be paying a premium on something for which you have no need.
Your Co-Borrower Might Not be Included
If you have a co-signer on the credit card application, you should make sure to ask if he or she is covered, and if so, to what extent. For example, if your co-borrower charges $3,000 to the card, then loses his job, will that money be covered by the insurance, or will you be responsible?
Credit insurance is not just available for credit cards, but also for mortgages, auto loans and personal loans. Some lenders require that the entire premium be paid up front, while others will allow you to pay monthly. Beware, however, because some lenders will include the credit insurance in your proposal without your knowledge, so don’t sign anything until you’re sure you want the insurance tacked onto your loan or line of credit.
The bottom line is that we are being harrassed on a daily basis from when we call in to change our PIN numbers to when we call customer service they want us under their payment protector plans and loss-of-work plans. Just say No to these unless you think it could possibly benefit your situation.