Credit Card Insurance Payment Protection

Anyone who uses a credit card worries about fraudulent charges and financial damages resulting from unauthorized use. Luckily, most credit cards have included insurance and protection as a cardholder benefit for these types of identity-theft incidents.

However, did you know that some credit cards also offer additional insurance perks, such as reimbursement for travel cancellations, extended warranties on certain products, and even purchase protection?

It’s true. Whenever you open a new credit card, you should read the fine print and understand all the benefits and protections it comes with and the types of coverage it includes as a perk to the cardholder. You should also understand if any of these benefits require an extra charge or fee.

Consumers can purchase another common credit card insurance as an “add-on” to their credit card. It helps further protect their finances during unexpected events by allowing them to stop making their minimum monthly payments without penalty.

Typically known as a Payment Protection Plan or Payment Protection Insurance, this coverage can help provide the consumer with peace of mind knowing that their credit will remain intact if they can’t make their minimum card payment for a certain period of time.

However, although it seems excellent on the surface, it might not be the right choice for everybody. Keep reading to learn everything that you need to know about Payment Protection Insurance and whether or not it is right for you.

How Does Credit Card Payment Protection Insurance Work?

The credit cardholder purchases payment protection insurance as an add-on to their credit card benefits. The credit card company bases the cost of this insurance on the monthly balance you carry on your card and can be as high as 10% of that cost. If triggered by a qualifying event, the insurance could allow you to postpone your minimum credit card payments for up to two years (it will also suspend the associated interest accumulation).

The insurance benefit kicks in when a specific life-changing event occurs that would affect the cardholder’s ability to make the minimum payments. Typically these events include the following:

  • Death
  • Unemployment
  • Disability
  • Certain types of leave of absence
  • Certain types of emergencies
  • Property Insurance for damaged or stolen merchandise purchased with the card

Some payment protection plans also cover events such as divorce, moving to a new residence, call to active duty (military), child adoption, retirement, and other instances that may affect the cardholder’s ability to pay. It is essential to read and understand the details of what your payment protection insurance covers. An extensive range exists among credit card companies. Some credit cards cover as many different events, while others cover just a few.

What Are the Limitations of This Type of Insurance?

On the surface, adding payment protection insurance as a benefit to your credit card may seem like the right decision. However, before committing to the extra expense, you should weigh the pros and cons.

For example, credit card companies often make it difficult to access the benefits when you need them. Generally, you will have to meet specific criteria and conditions for the insurance to pay out.

One such condition is that you cannot have already been behind on your monthly payments before the event that required the insurance benefit. So, if you missed a few payments and passed away, your heirs may not be able to use the benefit to pay off your credit card debt and would have to settle it from your estate instead. Certain waiting periods may also exist before a benefit kicks in after a death. Even specific causes of death could exclude you from receiving the benefits.

Other exclusions include not being able to use the disability benefit if you have a pre-existing condition and not qualifying for unemployment if you are seasonal, part-time, or self-employed.

Also, check whether your benefit qualifies as short-term or long-term. Short-term coverage will only pause payments for a few months, whereas long-term benefits will remain in place longer, usually up to 24 months. 

Finally, you must purchase the payment protection insurance through the bank or institution that issued your credit card. Therefore, the coverage only applies to that one specific card and not any other credit cards that you use. If you use multiple credit cards, you would need to purchase a separate policy for each, which can quickly add up costs.

Is Credit Card Insurance Worth It?

Some people may find peace of mind knowing that they have an extra safety net for their credit card debt if the unexpected happens. However, for many, credit card insurance is an unnecessary extra expense.

Before agreeing to purchase this extra protection, research what’s included and understand all the terms, conditions, and costs. You should also fully understand the cancellation policy if you decide you no longer want to pay for the coverage.

Suppose you have a decent safety net of savings, a life insurance policy, or other supplemental health insurance (like disability or critical illness insurance). In that case, it may not make sense for you to add the cost of credit card insurance as well. These safety nets should be enough to help you cover your minimum payments during an event that Payment Protection Insurance would cover.

However, if you don’t think that you would have enough funds to make your payments if an unexpected event significantly reduced your income, or if you don’t have life insurance to cover the debt if you die, you may want to consider adding Payment Protection Insurance to your card.

The bottom line is that many people who opted-in to this additional credit card insurance find that it costs them more in the long run. Even if you only pay $7 per month in credit card payment protection insurance, it adds up to $85 a year. If you don’t use the service for three years, that would be $255 that you could have paid toward your credit card balance instead. 

Other Considerations for Credit Card Payment Protection Insurance

Many credit card companies are no longer offering this type of insurance to customers due to its slightly problematic nature and the fact that it’s somewhat viewed negatively by the public. Some customers have even accused companies of deceptively adding this service onto credit cards without the consumer knowing or using pressure tactics to convince the customers to buy it as an extra.

Anytime you open a new credit card, you should speak with the company to ensure that they do not automatically enroll you in an extra insurance plan of this type. Also, make sure to check over your statements carefully, noticing any extra charges. Payment protection insurance plans will be listed separately on the statement. If you notice any charges like these and don’t want them, call the credit card company to make sure they cancel the protection insurance and will no longer charge you for the service. 

Finally, remember that credit card companies may have different names for this type of coverage. You might see options such as Credit Shield, Credit Safeguard, Balance Protection, or others when you sign up for the card. These options are all payment protection insurance plans that will require you to opt in via a verbal or written agreement. 

Final Thoughts

Consumers should be aware that Credit Card Payment Protection Insurance exists as an option for many types of credit cards and should analyze whether or not it makes sense for their budget and financial situation.

Just make sure that before you sign up for any extras type of payment protection program, you fully understand the details involved and any exclusions. You should also understand the cancellation process if the insurance no longer meets your needs.

Finally, consider whether other insurance policies, such as life, supplemental health, disability, etc., may better meet your needs or prove more cost-effective in the long run. Having the proper insurance protection for you and your family is essential, and many options exist to create a customized solution for your lifestyle and unique financial needs.

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