Is Credit Card Insurance Worth?
A payment protection plan is a form of insurance for your credit card, and it sounds tempting: in case of difficulty, you can use it to pause minimum monthly payments for several months in a row, avoiding additional fees and without affecting your credit rating. But is it worth paying a monthly subscription fee?
What is a payment protection plan?
Payment protection (also known as “credit card protection insurance”, “credit shield” or “credit protection”) is an add-on service that usually costs you a few dollars in monthly fees based on a small percentage of your total. … balance. The service will suspend payments (usually for up to 18 months) if a “triggering event” results in unemployment or disability. In addition, some payment protection plans cancel credit card debt in the event of death. So far so good, right?
back side
Qualifying for payment protection is not an easy task, even if you decide to pay for it before you run into trouble, as many plans have a long list of conditions and exceptions in small print. The GAO report showed that 24% of claims for benefits were denied, and that more than half of these denials were due to the cardholder’s failure to provide the appropriate documentation. The lack of transparency caught the attention of regulators in 2012, leading to some major banks ditching the product entirely (which may also explain why it is currently sold under so many different names).
Below is a list of reasons why you may not be able to qualify for all benefits or otherwise get the most out of your claim, according to Investopedia :
- You already have a health condition.
- If you are a seasonal or part-time or self-employed worker, you may not be eligible for unemployment benefits.
- You have reached the limit on the number of trigger events per year.
- There may be restrictions on larger payments such as debt relief.
- To qualify, you may need to be employed several months prior to enrollment.
- Insufficient documentation (as determined by your insurance company) to prove your disability, job loss, or other condition.
- You may need to be disabled for any job you are entitled to, not just the job you have.
The list of loopholes goes on. You really should read every detail of the policy carefully – and even if you think you are entering with your eyes open, interpreting the terms can be a battle between you and your lender.
Bottom line
Payment protection plans offer limited benefits that usually suspend your minimum payments and interest accrual for only a short period of time, and these benefits may not cover all emergencies. Money spent on monthly payments could instead be spent on life or disability insurance , which would provide better coverage. Another option is to create a reserve fund in case of possible difficulties in the future. Moreover, during the pandemic, many credit cards already offer abstinence programs; all you have to do is contact them directly to report difficulties. After all, why pay for what you can get for free?