The idea of protecting your debt in the event of a disability is smart. If you are sick or injured and cannot work, it is wise to have a plan in place to cover your expenses. Purchasing insurance through your credit card company is not the way to do that unless you feel compelled to buy the most expensive disability insurance money can buy.
Credit card companies are similar to mosquitoes. They will suck your blood for as long as they can and when they finish move on to the next victim. Am I being harsh? In 2009, congress passed the Credit Card Protection Act created to protect consumers against credit card lenders. Government recognized that once you become a debtor to the credit card company, they will do anything in their power to keep you a debtor for as long as possible. Miss a payment? That will cost you $39 and they will raise your interest rate to the highest rate possible, typically as high as 29%. You can only afford to pay the minimum? No problem that should only take you about 30 years! The law passed by congress probably has helped some, but of course, credit card companies are a creative bunch and certainly do not give up revenues easily.
Let’s get back to that credit protection and look at the numbers. I recently received an offer for credit protection from a card that I have. For 89 cents per $100 of my balance, they will cover my payment in the event I become disabled. Let’s do math. I will use a hypothetical balance of $5000. If I chose to sign up for their offer, I will pay $44.50/month to cover the minimum payment in the event I become disabled. To be clear, I will be paying the $44.5O for the debt protection on top of my monthly payment. Typically the minimum payment on a credit card is 2% of the balance. If my balance is $5000, my minimum payment is around $100/month. Using the example above, my total payment would end up at around $144/month. Keep in mind, I am still only paying the minimum on the card and can probably expect to have it paid off in about thirty years. Don’t believe me, read your credit card statement. They now tell you how long it will take to pay off your balance if only paying the minimum payment. This comes courtesy of the Credit Card Protection Bill. Assuming it takes thirty years and I pay for the disability protection the whole time, I will have shelled out thousands in extra money just for that protection.
If you sign up for the debt protection you are paying $44.50 for a benefit of $100/month. That’s insane! I suggest one of two things. If you truly want disability protection, purchase a disability policy from a reputable insurance company. You will want to consult with an independent agent that works with several companies. Rates will vary depending on age, gender, health and the type of work you do. You will have to go through medical underwriting, but if you are accepted for coverage, your rate will never go up and you will unicvv always have that protection as long as you pay your premium. I can assure you that if you are between he ages of 21 and 60, you will get much more coverage for the cost. The benefit will come as cash and you will have the freedom to pay what ever bills and debt are highest on your priority list.
If you cannot qualify for coverage due to health reasons, use the extra money to pay down your balance. After all, if you have no balance, you will not need to worry about a payment.
The last thing you want to do is give the credit card company any more money then what it takes to pay off your balance! They have a goal and one goal only. They want you for life! They need your money to come in every month for as long as you live. They feed off of your impulses and they entice you with rewards for spending your own money. When you find you have overspent, you have played right into their hands. Credit card protection insurance is simply a scare tactic and it must work or I assume they would not offer it. I am here to tell you, if you are truly concerned about covering your debt, find another way!