You’ve probably been approached by your credit card company about adding their insurance to your policy. They not only send you information in the mail and call you to solicit; they may offer this insurance through their customer services representatives (when you call to activate your card) as well as through spam and banner ads online. In short, they are really pushing for customers to add this insurance to their accounts. As pitched, it’s probably a small fee (maybe a couple bucks for every hundred you spend on your card) that is added onto your monthly bill, for which you’ll receive the benefit of having your credit card payments made by the company should you lose your job, become disabled, or even die. Sounds pretty good, right? Except that it’s not very good at all.
The first thing you need to know about these offers is that they are unnecessary. Unlike home insurance quotes, for example, which you seek out as a way to protect your assets, credit card insurance is pushed on you by creditors that hold your debt, mainly for the purpose of getting more money out of you (the industry boasts about $2 billion in yearly revenue from this upsell). Sure, they’ll tell you about the best-case scenarios for coverage, by which your payments will be made for you should you find yourself injured or ill and placed on long term disability, or should you lose your job (because of a layoff – firing doesn’t count). But they make it so difficult for the average person to collect that in truth, the only way you’ll really benefit fully is if you die (in which case your card will be paid in full, saving your remaining loved ones some expense).
Here’s the problem. In most cases, your creditor will only pay the minimum monthly payment, but they won’t do it right away. For starters, you have to prove that you are in a situation by which they are required to pay. This could mean providing all sorts of paperwork from doctors, employers, and so on. And even if it is decided that the company will pay out on your policy, it could take them quite a while to do so, resulting in late fees and additional interest accrual, meaning you’re actually taking on more debt. Further, it won’t cover any charges made after the fact. And of course, if you hold more than one card you’ll need multiple policies to cover each of them.
Finally, you should keep in mind that other insurance policies, while potentially costing you more, could also pay out quite a bit more (and come from more reliable sources). And of course, any money that you might be paying for credit card insurance could be put to even better use by funneling it into a savings account. If you have six months’ worth of salary sitting in the bank for a rainy day you probably won’t need the insurance offered by your creditor. The only real reason to get this type of insurance is if you’re otherwise uninsurable. And even then, you might be better off simply building up your savings (and giving up some of your credit cards while you’re at it). If it’s small business credit that you are concerned with, the DandB.com business directory can meet your company’s financial needs by tracking credit information on more than 29 million companies.
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