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| Life Insurance (album) (Photo credit: Wikipedia) |
Consumers are being solicited by credit card companies not only to apply for an account but for add-ons like credit monitoring and credit insurance. At first glance, the idea sounds great; for mere pennies credit card debt will be paid, in the case of an emergency. The lure for consumers is that these services are an important security necessity. It is implied that hackers and credit card thieves are around every corner. But is credit card insurance worth the price? Here we’ll show you the pros and cons to help you decide.
Four Types of Credit Insurance
Credit insurance is designed to pay the minimum monthly payment when the policy holder is unable to pay. There are four specific types: disability, involuntary employment, property insurance to fix or repair purchased items and life insurance that covers payment in full in the event of death. The policies are offered by not only credit card companies but banks, retailers and auto dealers. On average, the premium is $0.75 or 1% for each outstanding balance of $100 per month; that’s at least $22 on a balance of $3,000. Also remember that you’ll need separate policies for each credit card you want covered.
Big Profits for Issuers
According to Consumer Reports, annual sales of credit insurance are estimated to be a whopping $6 billion and a big money maker for issuers. When compared to other types of insurance, like auto and homeowners, credit card insurance policies are paid out at a much lower rate. An estimated 80 percent of premiums are paid out in claims for companies that sell life, property and casualty insurance policies compared to 44 percent for companies selling credit insurance. Increased profits for issuers are a result of fewer claims filed against these policies and restrictions may prevent a payout, earning large profits for the credit card company.
The Debate
Insurance policies are designed to offer protection against life’s’ unexpected traumas. Consumers who carry large amounts of debt or use credit just to get by and cannot get insurance elsewhere may benefit from a credit insurance policy. It’s easy to get, doesn’t require any health exam or won’t be denied because of a pre-existing condition. People who work in industries where there is the possibility of layoffs might want to consider involuntary unemployment options.
Critics of credit insurance, on the other hand, argue that it’s a ruse. Companies that offer the policies bank on the profits with little benefit being passed on to policy holders. In other words, it’s stacked against consumers, who would be better served by purchasing a life insurance policy. There’s also a good chance that another insurance policy is already covering the consumer. For example, many employers provide disability coverage that would apply in the situations that additional credit insurance would cover.
A Personal Decision
The question remains whether credit insurance is worth the cost. The simple answer is that there’s no fast yes or no. It’s a matter of opinion and depends on your specific situation. With most plans only covering the minimum payments, the premium may be better spent paying down the debt or set aside in an emergency fund.
If you decide credit insurance is right for you, be sure to read and understand all the fine print, terms and conditions and restrictions. Use a calculator to do the math to clearly see what it will cost in the long run. Learning about all the options will help you make the decision. As with everything in life, however, if it sounds too good to be true, it probably is.
Insurance: A Guide
"Remember kids, I have life insurance" - Adam Savage
This is a guest article from Tatyana Levin
These days one must be financially savvy. Money is not easy to come by and should be managed carefully. With the availability of tools that make it easy to keep track of current events, the stock market, and even your own money, it would be almost a crime to not utilize these tools to make the best and most informed financial decisions. Unfortunately, the more there is, the more there is to keep track of. This applies both to tracking tools and money (the small curse within the comfort of having money to keep track of).
The savvier ones of us dabble in investments, and the savviest make their living that way. The key is that they know what to invest in. Not magically, of course; investors do a significant amount of research to learn how to optimize their portfolios, but they have the understanding.
A grossly overlooked investment is insurance. This may be because is not typically referred to as an investment with the exception of whole life insurance that has a specific investment component within it. Webster’s defines the word “invest” as a commitment of money for a return and “insurance” as a guarantee. This makes insurance the safest type of investment, because your returns are guaranteed. But returns are not always financial in the case of insurance. They can be, if there is an unforeseen accident, but the most certain return is the feeling of security.
Now there are many different types of insurance, and what you need depends on your current situation. Obviously you only need auto insurance, found using auto insurance leads if you have a car, and you only need renter’s insurance if you rent and have possessions that you would need insured. Insurance is for those who have something to lose. With an attachment to something, either emotional of physical (or dependence, not like physically being glued to your car), comes the fear that it will be damaged or ruined in some way. For example, if your house caught on fire, you would be devastated. What would add insult to injury is not having a way to recover from this horrible disaster.
These types of examples are not unique to this article. That is the way that insurance is sold. As they say that clichés are clichés for a reason, insurance is promoted this way for a reason. The foundation of the concept of insurance is uncertainty, and it is the same uncertainty that is conjured up when investing.
The main difference between insurance and investment is that not having insurance creates a feeling of uncertainty while investments by nature are uncertain. Therefore, investing in insurance creates security and is the only secure investment that exists (and is legal). Getting insurance should be one of the easier financial tasks if you apply all the resources available with technological advances like smart phones.
About the Author: This article was written by Tatyana Levin, a copywriter for InsuranceFiles.com
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