Credit Card Insurance

Credit card insurance has many different names including credit card protection insurance, credit shield, payment protection and credit safeguard etc. The majority of credit card companies present credit card insurance. Most customers are unaware of the specifications of credit card insurance and accept or decline them without appropriate knowledge. Credit card companies usually offer four main types of credit card insurance viz.

• Credit Life Insurance – protects your beneficiaries against default on outstanding debts in the event of your death. The beneficiary of credit life insurance policy is the creditor.
  
• Credit Disability Insurance – makes lowest monthly payments on your credit card in the event that you become medically disabled and lose your income stream. However, credit disability insurance protects your credit rating by making minimum monthly payments only for a time period specified in the contract. Moreover, purchases made after the disability would not be financed by credit disability insurance.
  
• Credit Property Insurance – is another type of credit card insurance that leads to canceling all your credit card obligations in the event that items purchased by the credit card are destroyed. However, specific events covered by the credit property insurance are listed in the contract and debt would not be cancelled if the purchased items were destroyed by an event not covered by the insurance.

• Involuntary Unemployment Credit Insurance – is conceptually the same as credit disability insurance. However, its trigger is different. It makes your least monthly payments if you lose your job because of layoffs or downsizing. Like credit disability insurance involuntary unemployment insurance does not finance purchases made after losing employment and protects your credit rating only for a period specified in the insurance contract.

Most credit card insurance policies offer voluntary enrollment and cancellation at any time without paying extra charges. Premium on credit card insurance is calculated on outstanding monthly balance. As with most controversial issues credit card insurance has supporters as well as critics. Most critics view credit card insurance as offering no or little benefit to consumers and is a money making proposition for the insurance company. Just because you own one or more credit cards does not mean you should have credit card insurance as well. You may have better and cheaper alternatives to make your minimum monthly payments in adverse circumstances. These vehicles may include but are not restricted to savings account, employment insurance, inheritance funds, general income replacement policy etc.

Another type of insurance offered by credit card companies is life insurance that settles all your outstanding credit card debt in the event of your death. This is probably the most useful type of credit card insurance and will protect your beneficiaries from adverse circumstances in case you meet with sudden death. Most customers tend to avoid credit card insurance because credit card companies charge a premium on the monthly outstanding balance. Customers view it as another vehicle to make money for the credit card company and thus prefer to avoid credit card insurance. Also protective cover for disability and unemployment are healthy propositions and should be taken up. This is because they help you retain your credit rating in adverse circumstances even if you have to pay a few extra dollars every month. As with any other insurance policy such as life insurance, health insurance, mortgage insurance, car insurance etc credit card insurance should be bought keeping in view one’s individual needs and circumstances. Although credit disability insurance and involuntary unemployment credit insurance may seem attractive options they have their flaws. Mainly policies only do the smallest amount of monthly payment on credit cards and interest continues to accrue on the remaining amount piling up your credit card debt.