At first glance, a credit card insurance policy sounds like a great deal: For mere pennies on every $100 of debt, your credit card bills will be paid even if you don't have the money. Sounds like a bargain, right?
As with everything in life, however, if it sounds too good to be true, it probably is. Though many cardholders believe a policy will pay off the card completely, the reality is that most plans only cover the minimum payments. And even if you have the insurance, the company may make it difficult for you to collect.
Variations on a theme
Though programs and coverage will vary, there are four basic types of credit insurance:
Nearly all credit card companies offer some form of credit insurance for a couple of very good reasons. "Some card companies really push credit insurance because the policies are extremely profitable," says Dennis O'Brien, president and founder of Coastal Financial Advisors. Indeed, the Center For Economic Justice estimates that credit insurance generates over $2 billion in revenue each year.
"It's always easiest to sell to your existing customers," adds Peter Bielagus, a licensed financial adviser and author of "Getting Loaded: Make A Million While You're Still Young Enough To Enjoy It."
Solicitations can come from a telemarketer, a flier tucked in with your statement or even a customer service rep who's helping you authorize a new card. They're also starting to show up in e-mail and online banner ads. Then, if you sign up, the issuer gets a cut of the sale from the insurance company -- which is usually an outside partner rather than an sister company or affiliate -- as does the phone rep who's trying to get you to sign up.
By Lisa Rogak ~ CreditCards.com