There are several major pitfalls related to credit card insurance, which is why consumer advocates generally advise against buying these policies unless someone is medically unable to qualify for disability insurance.
Pitfall #1 is the high cost of credit card insurance payments over time, which makes them a big profit center for credit card companies. The monthly fee for credit card protection plans often ranges from 50 cents to 99 cents per $100 of debt (for example, $22.50 to $49.50 per month on a $5,000 credit card balance).
A second pitfall is that credit card insurance benefits may only be able to be obtained after other insurance plans (for example, an individual disability insurance policy) pay benefits.
A third pitfall is the detailed fine print involved with this coverage. For example, some credit card disability insurance plans don't pay benefits unless a covered cardholder can't perform the duties of any type of occupation. In addition, many card issuers will freeze a user's account when disability or unemployment benefit payments are made.
Finally, pitfall #4 is that credit card protection plans for disability and unemployment typically only make the required monthly minimum payment on credit card balances. The outstanding balance remains and continues to accrue interest.
Financial experts generally suggest avoiding credit card protection plans. Instead, build up emergency reserves to provide cash in the event of unemployment, and obtain insurance coverage for disability privately or through an employer.
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