Credit Card Insurance: Is It Worth Getting?

Dayton Uttinger
Padlock on top of credit cards
Reading Time: 3 minutes

Credit card insurance can sound like a no-brainer at first. For a low monthly payment, you won’t have to worry about your credit card balance if disaster strikes. This could be a huge relief, but it doesn’t always work like that. Before you sign up for credit card insurance, make sure you understand exactly what you’re agreeing to, as it can be a difficult process to reverse.

What Is Credit Card Insurance?

Just like any other insurance policy, with credit card insurance, you pay money every month in hopes that it will protect your finances in the future. In an emergency, your credit card bill may be the furthest thing from you mind; having credit card insurance will make sure that your payments still get made even if you can’t handle them.

However, depending on the policy and the situation, there are a lot of variables to consider. The policies can be very limiting.

Credit Life Insurance

Credit life insurance ensures that a card’s balance is paid off in the event of a card holder’s death. This can be a relief for your family in a difficult time, but keep in mind that it only covers the balance at the time of your death, not any additional expenses authorized users might incur afterwards.

Credit Unemployment Insurance

This will cover your credit card bill if you get laid off, though usually only the minimum payment. It typically won’t cover expenses after you get laid off either, just for charges incurred beforehand. It also won’t cover you if you get fired or if you quit.

Credit Disability Insurance

Like other disability insurances, this will pay off the minimum amount on your balance in the event of a sudden disability. How long this period extends generally depends on the disability, but purchases made after the disability are usually excluded.

Credit Property Insurance

Credit property insurance will pay for damaged items if you purchased them with a credit card. Credit card property and purchase insurance programs typically have a lot of variables and technicalities you’ll have to watch out for, if you ever plan on using it. The items usually have to be damaged in a few specific ways, or fall under a specific class of products, such as cell phones.

Credit Card Travel Insurance

Travel insurance

will cover you for cancelled flights, lost luggage, or other travel-related accidents. Many credit cards offer it as a perk, although you’ll have to pay extra for the card membership usually. If you’re a frequent traveler, this could save you some headaches down the road. Some credit card travel policies will automatically include rental car protection, while for others rental car coverage will be a separate policy add-on you may elect to have.

How Does Credit Card Insurance Work?

Credit card insurance can protect your credit score and prevent credit card debt, but you will be charged an additional fee for signing up. However, most of these policies will only cover the minimum monthly payment, and often in only specific circumstances.

The insurance that your credit card company offers is likely through a third party company, not an internal department of your card issuer, and it is really only useful for protecting the cardholder’s credit score. More conventional insurance policies cover more broad purchases, and many employers offer them at reduced rates, making them cheaper than credit card insurance policies.

If you’re worried about more than just your credit score in the event of a disaster, these more conventional policies are probably better suited. The one advantage of credit card insurance is that it is easier to get than conventional insurance policies. If you cannot qualify for other types of insurance, credit card insurance might be your only option.

Beware Aggressive Credit Insurance Marketing and Sales

Credit card insurance policies are very profitable for the card issuers, so they often push them aggressively. Be aware that you do not have to sign anything to be enrolled in credit card insurance, you just have to answer “yes” to their marketing call. Don’t just mindlessly agree to whatever they’re saying— you don’t want to end up enrolled in something you didn’t want in the first place.

How to Cancel Credit Card Insurance

This is especially true because it is difficult to cancel credit card insurance policies. You’ll have to keep a sharp eye on your monthly statement to even notice that they’re charging you. That will be your only sign that you’ve been enrolled.

If you decide you’d like to cancel the policy, be prepared to make several calls. Because the insurance is probably offered through some third party company, not the credit card company themselves, you will likely have to contact several offices.

The best advice for canceling your credit card insurance is to prepare for that possibility beforehand. When you enroll in the policy, ask for all the information you’d need in the event that you decide to cancel. It will be different for every company, so write it down and keep it somewhere you won’t lose it.

Getting credit card insurance is usually a bad financial move, since other insurance providers can provide you with cheaper, more inclusive policies. However, if you do decide to enroll in a credit card insurance policy, be diligent about understanding what is covered in order to take full advantage of the policy, and keep your cancellation information handy.

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