Credit Insurance…Useful but Limited – Know the Real Value Before You Sign

Credit insurance is commonly misunderstood and users often accept it because it “sounds” like it should be of value.

So, find out exactly what it costs, what it covers. and when and how it pays before you sign up. In its essence it is of value to a relatively small percentage of cardholders — make sure it doesn’t simply double coverage you have somewhere else (in insurance policies or through your workplace) or that it won’t end up costing you more than it’s worth (do some quick calculator work).

You can insure yourself against being unable to pay if you are disabled or lose your job. And you can cover yourself so that if you die your card debt (or most of it) can be paid off.

Credit insurance is usually offered as a mix of life, disability, and unemployment coverage. It is intended to cover your minimum monthly payment if you can’t pay because of a job loss or disability and to pay off all, or most, of your balance if you die.

A plus that comes with that — your credit rating stays healthy even if you don’t.

What you pay is usually fixed by what your last bill was because the premium covers only what you owed at that time (not new card bills you have run up).

Remember that credit insurance is voluntary, and that rates are regulated by your state insurance commissioner (so you can check to make sure you aren’t getting ripped off).

Some policies have caps that limit the total liability. Know what that amount is so that you don’t run over it in any month.

It’s easy to add to your credit card (just ask the card issuer) and usually easy to get rid of (since you pay a monthly premium, it can be instantly cancelled).

Neither unemployment nor life card insurance is really popular, and only a minority of card owners use them. They are most popular with people who do not have other insurance that might cover debts incurred by loss of job, disability or death.

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