Everything Finance

Credit Card Protection Plans

The number of unemployed Americans hit 13.9 million in May, according to the U.S. Bureau of Labor Statistics. As job cuts in the United States continue and finding a new job becomes more challenging, people are fearful about their financial future. In effort to secure their personal finances, consumers have become more receptive to credit card insurance. These protection plans may be worthwhile tools for those who worry about not meeting their financial obligations, but they can be costly.

The protection plans offered by credit card issuers are designed to help consumers in the event that loss of employment or other crisis prevents them from making their minimum payments. If you are unable to pay your credit card bill, the protection plan covers the minimum payment for you. Some of these plans also include life insurance so that in the event of death, your entire balance will be paid off.

Though payment protection plans can temporarily save you from serious financial struggles, it comes with a cost. Rates vary from state to state but average between 35 cents and 95 cents per $100 of the account balance. If you carry a large balance, the insurance costs can be sizeable.

These insurance programs are not available in all states and are also not available for self- employed or independent contractors. In order to be eligible, you must work at least 30 hours a week.

The 4 Major Types of Credit Insurance

In order to pick the right credit card insurance plan, consider the four main types of credit insurance: life, disability, involuntary unemployment and property.

• Credit involuntary unemployment insurance: In the case that you lose your job or your salary is cut for an extended time period, this type of insurance will pay the minimum amount due on your account.
• Credit life insurance: If you happen to have a balance on your card when you die, the credit card company will cover this amount, given the credit card company is termed the beneficiary of the insurance.
• Credit disability insurance: With this type of insurance, minimum payments will be covered for a specified period if you have a medical disability. However, purchases made after the injury will not be covered.
• Credit property insurance: If you purchase an item that is damaged or, in some cases, stolen, the credit card company will cover these costs. Consumers should know that this type of insurance is not always included in credit card protection plans. Therefore, consumers should try to get all the facts from the credit card issuer.

You Still Need To Be Responsible

Ask your credit card issuer the following questions before applying for card insurance:

• Which circumstances will the insurance pay for and which will it not cover?
• Will the insurance cover your spouse and/or children?
• Are there age restrictions for life or disability insurance?
• Can the insurance rates increase unexpectedly?
• Can the insurance plan be canceled at any time?

Once you have evaluated the benefits of the insurance as well as the cost, you can make an educated decision about purchasing it or not. In tough economic times, it may help you sleep at night knowing you have insurance to help with credit card payments if you become unemployed. But it might be better just to try to pay down as much debt as possible while you still have your job.

This is guest post by Jason Collazo.

About Tushar Mathur

Tushar Mathur has been blogging about Personal Finance since January, 2007. This has helped him recognize what topics readers like and relate to. The goal is to spot good news-worthy info and get it out to the public as soon as possible. Tushar Mathur maintains this Personal Finance blog called Everything Finance. The blog articles fall under these categories: Investing, saving money, shopping, blogging and making money online. Send Tushar Mathur an email at tushar@everythingfinanceblog.com