Credit Card Insurance - Is it worth it?

Be careful when you apply for credit with a credit card company. Consider this.
A customer applied for credit at Best Buy on Black Friday (day after Thanksgiving) because there were some very interesting interest free purchases that interested her. The provider of the credit card was HSBC (Household-Beneficial Corporation) on behalf of Best Buy. A camera was purchased for 6 months free interest. The Best Buy clerk took the filled-out application from the applicant, Sue and completed it online for her. Sue, being familiar with financial consumer issues and consumer applications was very careful not to fall into the "extra" trap on the application that she filled out. When the clerk used that application to complete it on their register, he didn't tell Sue about the "extra" that was automatic when he submitted her application. That "extra" is particularly a product most credit card issuers are now calling "unemployment credit card insurance". For a monthly fee based on the amount of debt on the card, the card holder is supposedly covered for a period of time indicating that the insurance company will make your monthly payments due to a lay-off or perhaps a disability. This policy will NOT forgive your debt should you experience a lay-off or a disability but merely make the monthly minimum payment over a specified period of time.

What did Sue do or not do when she purchased her camera? She made sure that no box was checked that indicated a subscription to anything additional other than her direct purchase of her camera on her credit application at Best Buy. She made sure the Best Buy associate understood this and made him uncheck that option box. Extras such as "credit protection enrollment" or "credit insurance" are sometimes by default (automatic) check marked and billed to you. By the time you get your first statement and in some cases a few months down the road depending on how closely you check your finances, you find that you might have been unaware of the new monthly premium charges on your statements. It's credit insurance and you didn't look closely enough when you applied if this has happened to you. Calling and cancelling does not refund for the time you didn't catch this and were covered. Like most insurance policies your fees only stop the day you cancel.

You may ask, why is this something I should watch when I apply for any type of credit card? The answer is simple. This is an insurance product and in and of itself it does not do what you think it will do. The best way to illustrate this is to understand what this product is. When you apply for a credit card you are becoming a financial customer to a card issuing bank agreeing that you will pay certain fees (finance charges) for the extension of credit over a period of time. You are given a credit limit at the time they accept you as their customer and give you a credit limit they believe you can handle. You may charge up to this limit but if you don't pay it off in total within 25-30 days (read the contract and fine print) you will be charged an agreed upon interest rate (finance charge) as indicated by the issuing bank. That is the way credit card issuers make their money. Along with that interest they collect, the credit issuers also believe (especially in this economy) that they can sell you another product that will net them a commission for selling it to you. That product is an small insurance policy (agreement) that will cover your monthly payments with this credit card company if you should be unable to pay due to unemployment or diability. This policy is said to make your payments and maintain your account while you are unable. Some conservative consumers might find this a good move to protect themselves and their credit but it actually is a very bad decision in most cases. It doesn't work. Why?There are so many requirements and exceptions that you will virtually be throwing your money away on this so-called protection. The outcome, should you become unemployed or disabled and unable to pay your obligations will be the same with or without this protection. You will still have late payments on your credit record that can't be erased and the bill will still not be paid. So don't let yourself fall into this trap.

Take, for instance a client of mine who needed help with his credit. He was a recovering credit client trying to improve his credit after a period of employment. He brought two credit cards he was approved for and allowed them to talk him into "credit protection". He was being charged $4.95 each month on each account for this protection. While unemployed he called these two credit card companies to take advantage of his "credit protection" policy he knew he was paying for. He was sent paperwork to work directly with the company who held the policy. He had to provide documentation and after months of application and clarification he was denied due to a clause cleverly crafted that keep the insurance companies covered. Not only was he out the $4.95/month he had been paying for the last year and a half, 6 of those months spent working back and forth with the insurance company got him 30, 60 and 90 day late dings on his credit, a cancellation of his credit cards and the remaining obligation plus interest demanded to be paid in full under the terms of the credit card agreement.

Before you sign up you have to decide whether the fees would be better spent on a life and disability insurance policy that would encompass all aspects of your life.
Specific policies such as these are typically more expensive, restrictive and rarely pay out.