Credit card deals nearly always offer credit insurance protection. It's an option that some people need and some people don't. Credit protection insurance makes your credit card and other loan payments for you if something happens that keeps you from making them. Some people call it payment protection insurance, and it can keep you from financial disaster if something unexpected happens that keeps you from working. There are two major types of credit protection insurance: credit disability and credit life insurance. If something happens that keeps you from working for a period of time, credit protection insurance makes the minimum monthly payment on whatever credit card balance or loan you purchased it for. That's usually 2%-3% of the balance, and it's probably less than you would normally pay. It does, however, satisfy the credit card company and prevents late fees and increased interest rates from being added to your account. Credit life insurance pays your loan or credit card balance off if you die. That keeps your family from having to assume your debt after you are gone. Most credit cards and loans give you the option of purchasing credit protection insurance when you take them out. You can usually buy credit protection insurance for every $100 that you owe. The amount of protection - and your charge for it - varies with how much you owe. As your credit card balance declines, so does your credit protection insurance and the amount you are charged for it. Advantages of Credit InsuranceCredit protection insurance can be a great deal for some people. If your finances are tight enough that, if you were disabled, you would be unable to make even the minimum payment, credit protection insurance would do that for you. Your payments would continue to be made on time, and you wouldn't suffer the consequences of being unable to pay your bills. Most young families need life insurance equal to at least three times the annual household income to meet the financial burdens of the death of one spouse. If you don't have enough savings or life insurance to take care of your family if you should die, credit card protection insurance can help. It will take care of at least one debt for your family. Sometimes a creditor will require that you buy credit protection insurance of some kind before they will lend you money. Disadvantages of Credit InsuranceCredit protection insurance is the most expensive insurance you can buy. It may be a better choice to buy life or disability insurance instead. Credit protection insurance doesn't cover all emergencies. For instance, it doesn't cover unemployment due to seasonal work, pregnancy and childbirth or elective surgery. It may only make your payments for a set period of time, whether you are still unable to work or not. There can be all kinds of limitations as to when credit protection insurance will pay, so it is important to read the contract carefully. Should You Buy Insurance?Before you answer that question, look at your finances right now. Do you have money in savings? Do you have disability insurance that will pay your bills if something happens? Do you have enough disability insurance? What about life insurance? Do you have flex in your budget to take care of emergencies? If you already have the resources to deal with an emergency, you probably don't need credit protection insurance. Then look at the "what if's." What would happen if - you became unable to work? You died? Who would be responsible for your bills? Would they be able to pay them? If you don't have adequate resources to take care of an emergency, or if you would have to rely on loved ones and friends, credit protection insurance might be a good option. Credit protection insurance isn't for everyone, but it can provide essential emergency help for people who are financially vulnerable. If you decide not to buy credit protection insurance, consider purchasing additional life or disability insurance instead. You'll still be providing protection for your family in case something happens, but usually at a lower cost.
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