The 5-Step Guide to Considering Insurance Offered by Credit Card Companies

      1.     Become knowledgeable about what credit insurance is:  if you own a credit card, you have probably been asked by the company if you would like to add credit insurance. Most are unfamiliar with this type of insurance and either decline it or accept it automatically without knowing if it is the right type of insurance for their needs. As with all insurance, determining need is different from person to person because of our different lifestyles and obligations. Credit insurance may be beneficial to some but just an unneeded cost for others depending on one's situation. Knowing what credit insurance is and the different types can help you make an informed decision.

Credit insurance can come in a variety of forms. The four main types are credit life, disability, unemployment, and property:

·      Credit life insurance pays off the debt you owe if you die. The beneficiary of the policy has to be the company that the debt is owed to.

·      Credit disability insurance protects your credit rating by making your monthly minimum payment if you become medically disabled. Usually there is a set period that payments will be made and additional purchases after the disability will not be included.

·     Involuntary unemployment credit insurance will make your minimum monthly payment if you are laid-off or downsized, and again, purchases after the involuntary unemployment would not be covered.

·     Credit property insurance usually will completely cancel debt on items you purchased with the credit if the items are completely destroyed by specific incidents listed in the policy and a deductible would not apply for the damages to be paid.

2.     Know how credit insurance is marketed:  now that you know a little more about credit insurance, it is important to understand how it is marketed or sold to consumers. Usually companies will ask you to purchase it when you sign-up for the credit or in a later telemarketing solicitation. When credit insurance is purchased, it is offered free for a specific time and sometimes the company will give you a check to cash into your bank account as an incentive to try out the credit insurance. By cashing the check, you are enrolling in the program.

Unlike a lot of insurance plans, credit insurance can start by a verbal "yes" and does not necessarily require a signature so make sure you pay attention to what you are agreeing to or filling out on your credit application.

3.     Decide if credit insurance is for you:  Considering your current and future financial needs is the first step in determining if you might benefit from credit insurance. If you already have substantial life and disability insurance policies, it may be possible that you will have enough coverage in those policies to cover your credit accounts due to your death or disability. Nevertheless, on the other hand, if you do not have any type of life and disability policies that does not necessarily mean credit insurance is the best choice for you.

Credit insurance may not be as cost effective and is certainly not as flexible as traditional life and disability policies. For example, if you have many credit cards you would have to take out a policy on each of those accounts. With all those monthly policies, you may be able to purchase a traditional life and/or disability policy for less and get more coverage, not to mention after your credit balance is paid with a traditional policy your dependants would receive the remaining amount. In addition, as previously mentioned, with disability and unemployment insurance only the minimum payment is covered and only for a specified amount of time. It is possible that after interest accumulates from only minimum payments being made that the balance could be larger after the specified time allowed in the policy for payments.

4.     Inquire about the credit insurance policies being offered to you:  if you decide that credit insurance is for you, it is important to know about the policy your are getting. You will want to ask about what is excluded in the policy. Moreover, remember that if you purchase a credit insurance policy that encompasses all 4 types of credit insurance (life, disability, unemployment, and property), make sure you are not paying for something you don’t need. For example, if you are not employed at the time of getting the unemployment insurance you are paying for a coverage that you will not use. Another example would be with credit life insurance. Some policies are limited to age restrictions and the credit insurance sales person will often not ask your age but instead just sign you up for the insurance. Make sure you research all the requirements carefully before accepting the policy.

5.     Find out if you can easily cancel credit insurance:  As stated earlier, most credit insurance is on a beginning free trial basis. After the free trial is over you would need to decide if you would want to keep the policy or not. Unfortunately, after the free trial period it may become more difficult to cancel a credit insurance policy. In some cases, it is hard to locate the correct phone number to cancel the policy. Contacting the credit card company may not be helpful either since they may not be sure what insurance company may have offered you the credit insurance.

If you do decide to purchase a credit insurance policy make sure when you are purchasing it you get all the

information you would need in order to cancel it, and keep that information stored in a safe place with the

accompanying credit card information.