Do You Need Credit Card Insurance?

QUESTION: What is your feeling about the necessityto purchase credit card insurance? I did not used to feel it wasnecessary until I lost my job last fall and have only been able toobtain part-time employment at less than half of what I was making.Could you offer some advice on questions to ask the credit companyprior to authorizing the purchase of the insurance?

ANSWER: Insurance needs tend to be very specific toa person's life situation, and credit card insurance is no different.Having said that, the insurance sounds wonderful for the scenario youdescribe of losing a job and half your income; however, the credit cardinsurance might not kick in, as you would hope.

First, let's agree on what credit card insurance is and how itmight or might not benefit you. Four major types of credit insuranceare offered: life, disability, involuntary unemployment and property.

• Credit life insurance will pay the amount owed on your card at the time of your death, so long as the card company is named the beneficiary of the insurance.
• Credit disability insurance will cover the minimum payment due on your card for a specified period after a medical disability. New purchases after you become disabled are not covered.
• Credit involuntary unemployment insurance will pay the minimum amount due on your account if you are laid off or downsized for a specified period. New purchases after you become unemployed are not covered.
• Credit property insurance might come with your credit card and usually provides payment for items purchased with the credit card if the items are destroyed or, in some cases, stolen.

As you can see, one shortcoming ofdisabilityor unemployment credit card insurance is that the payment made by theinsurance is only your minimum payment and is usually only paid for avery limited period. Another drawback is that if you have severalcredit cards, you have to purchase separate insurance for each card.

A better alternative for you might be your everyday, ordinaryterm-life or disability insurance. You might receive better coverage ata cheaper price, and once the insurance has paid your credit card, yourdependants would receive the remaining amount.

Questions to ask your card issuer before purchasing insurance:

• What kinds of situations are covered, and which ones aren't?
• Are there any age restrictions for life or disability insurance?
• What are the requirements for each policy? For instance, what if you miss a payment or your account is not in good standing at the time you file a claim?
• Can you purchase only one or two coverage options, or do you have to purchase all?
• What is the annual cost of the insurance, and how often can rates increase?
• How do you cancel the policy?

If you decide to purchase credit card insurance, or any otherinsurance for that matter, be sure you know exactly what you aregetting and exactly what it will cost over time.

While your case may have been covered because of your uniquesituation, for most people, credit insurance is expensive and rarelypays off. I would definitely not place credit insurance in the "need"category. An emergency savings fund for this and other unexpectedexpenses is preferable in my book.

Caution: Many scams abound with people calling to supply youwith credit-loss protection from your card issuer. The scam artist willtell you they need your card number and expiration date to issue theinsurance. Credit card loss-protection insurance is not necessary; youare generally only responsible for a maximum of $50 of fraudulentcharges and then only if you don't report the loss to your issuer in areasonable amount of time.

Good luck!