Are Credit Card Protection Plans Worth the Money?

When you apply for a credit card, you will probably find yourself being given the option of adding a credit card protection plan onto the account.  These used to be called credit insurance and most people declined.  But now, they have been re-packaged and are being pushed as a major benefit.

Consider what they offer.  These protection plans are just insurance plans under which you make payments on your account for the coverage specified.  Coverage kicks in usually if you lose your job or are disabled.  The actions taken are suspension of your account, stops accrual of interest, stops late fees for a period of time and waives payments.  Also, there is no fee if you have paid off your balance on time every month.

These are very helpful should you find yourself in one of the unfortunate situations that force you to call up on the benefits.  But there are cautions to signing up for these plans.

Strict ineligibilities.  You have to read all of the fine print about being eligible for coverage.  If you go over your credit card limit, you are suddenly ineligible for coverage even if you have been paying all along.  If you are already unemployed, you are not eligible.  If you leave your job voluntarily you will not be covered.

The coverage is for full-time employees only and seasonal workers or the self employed need not apply.  If you try to activate coverage after a layoff, you will be required to show that you have applied for unemployment benefits and then there is a waiting period of 30 days from some insurers.

These are but some of the restrictions tied to these policies.  There are more that are even more restricting not discussed here.

Large fees.  The average fee is .50 for each $100.00, but the larger card companies are charging twice that amount.  And, while the fee does not seem like much, it can add up especially if you have a high balance and cannot afford to pay it down.  You will find, also that these fees are added to your account as a purchase so that they are subject to interest charges as well.

Difficulty collecting.  You would think that after paying for years and years on these policies, the insurance entities backing them would be happy to enter your claim and begin to pay you per the terms of the policy.  Think again.  These programs have proven to be some of the most difficult to contact and move towards enforcement of their own policy benefits.  There also seems to be an inordinate amount of cancellation  or denying of coverage when those who paid for them try to get the companies to perform to the policy statements.

These policies are proving to be more of a source of irritation that a help.  Only those with perfect credit and payment histories need apply and attempt to collect on the policy benefits.  In fact, many state attorneys general offices have been contacted with complaints about these policies but their hands are tied because there is not state regulation of these types of policies.

You would be better off obtaining your own insurance policies and then finding out if there are other options and riders that you can add to them in order to afford you some of the benefits offered by these credit card companies.  What you will find is that you will pay less in premiums and actually deal with insurance companies and a local agent who care about you and what happens to your health and financial well-being.

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This entry was posted on Friday, April 10th, 2009 at 9:06 pm and is filed under Credit Card Advice, Credit Card Use. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.