Though programs and coverage will vary, there are four basic types of credit insurance:
* Credit life insurance pays off the credit card balance owed at the time of the cardholder's death.
* Credit disability insurance will make the minimum payment due for a specified period after a medical disability. Purchases made after the disability are generally excluded.
* Credit involuntary unemployment insurance will cover the minimum payment if a cardholder is laid off for a specific period of time. Charges incurred after the layoff are excluded, and if you're fired, you're not covered.
* Credit property insurance pays for credit card purchases if the items are damaged or, in some cases, stolen.
Unlike other kinds of insurance, credit insurance doesn't require a signature to purchase a policy. In many cases, all you have to do is verbally agree over the phone. With one popular offer, the first 30 days are free, and you'll only be billed after that period. What they don't mention is that it's often difficult to cancel, and it's not unheard of for an unscrupulous representative to sign you up without your consent.
Financial experts agree that most people don't need credit card insurance for several reasons.
First, there's a very good chance you're already covered by another insurance policy. If your employer offers a standard $50,000 life insurance or short-term disability policy, you're covered. In addition, homeowners' insurance typically will pay for damaged property.
Also, other insurance policies are generally cheaper. "For example, term life insurance costs less and provides better coverage than a credit card policy and if you have three credit cards, you'll need three separate credit card insurance policies to be sure you're totally covered. There's another problem, collecting on a claim can be difficult, and the burden of proof is on the policyholder.
I know I may sound like I'm totally against this insurance but for a few out there it may be best to get it. The people who need it the most are those folks who simply cannot get insurance elsewhere. The chief virtue of credit insurance is that it's easy to get. If you have a pre-existing condition that prevents you from getting life or disability insurance, then credit insurance might be worth considering but experts agree that it's a better idea to self-insure by making a small deposit each month into a savings account to draw on for the minimum payment. After all, it's better than opting for a plan that may not deliver if you find yourself facing financial challenges in case of disability or unemployment.
