Credit Card Insurance and Your Pocketbook

Have you decided to get credit card insurance? If so, your insurance provider is laughing all the way to the bank, and you have purchased one of the least necessary insurance products around.

Here's the scoop on credit card insurance: the insurance only "kicks in" if you carry a balance. Further, you only pay if and when you are carrying a balance -- which seems like a good deal, at first. Since the credit card company really wants you to carry a balance, they are prepared to do almost anything to make that seem "safer" and easier for you. Thus, credit card insurance, just in case you are sick, disabled or die in an accident. This insurance will then pay off your balance (although it won't handle any new charges made to the card after that point).

What if you accidentally don't pay off your credit card this month even though you intended to? You'll find a charge for insurance coverage on your next month's bill, and the amount you owe to the credit card company will be even more than just the outstanding amount plus interest.

So why would you buy this coverage?

First of all, you should never be carrying a balance on your credit card! Have you seen the interest rates these companies are charging? If you have to, refinance your home -- but don't carry a balance.

Secondly, if you are carrying a balance and you have credit card insurance, it is one of the most expensive insurance coverages you can buy! They make it easy for you to get it; the coverage makes it look easy for you to carry a balance; but you have to know that, like all insurance products, the odds are stacked in favor of the house, and the house is the insurer. And the insurer is likely your credit card company! Do you want to pay them any more than necessary? 

As soon as you start to carry a balance, you start to pay for the insurance. As soon as you are paid up to date, you cease to pay for the insurance. This is how the insurer makes this insurance look attractive. After all, if you don't have a balance, you don't pay. However, if you do have a balance, you do pay -- and in effect, you've just cost yourself even more in terms of additional charges to your card, on top of your balance.

Make sure you have sufficient disability insurance so that you can meet your financial obligations if you are ever sick or disabled. Make sure you have enough life insurance to pay off all current debt -- and a bit more. Don't get suckered into credit card insurance.


Posted by Evan on May 25,2006 at 11:31 AM
Good article, nice points on the idea of credit card insurance.  It doesn't quite seem to add up, instead it seems more like a racket for the credit card companies.  Instead of them creating a more comfortable PR situation they may have distanced themselves even more from the general public.
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