It’s hard to miss all the news about identity theft and the damage caused to some people’s credit reports. With so much reporting about identity theft con-artists have set up elaborate scams to scare consumers into buying worthless credit protection insurance. The question is, Should anyone buy credit protection insurance, or a payment protection plan, or identity theft insurance?
The answer is NO:
- 1. Under Federal law, there is a limit of $50 liability for unauthorized use of your credit card. Check your statements monthly or on the Internet and make sure you authorized each charge. If you notice a charge that you didn’t approve then follow the process to dispute the charge with your credit card company. You don’t need insurance for a risk that is already covered by the law.
- 2. The cost of payment protection insurance is based on the amount of debt. If the balance is zero, the premium is zero. Some credit representatives offer this as part of the sale by offering a “free 3-month trial” for a payment protection plan in the event you get laid off. The hope is that you add the insurance when you don’t need it and when it‘s free. They count on the fact one day there will be a balance and you will forget you signed up, and then take a few months to call about those mysterious charges on your statement every month.
- 3. If you carry balances on your credit cards, it’s still a bad idea to purchase credit protection insurance. The math doesn’t add up. Standard protection plans usually cost $0.85 per $100 balance on the card. If a balance of $5,000 is carried the cost of the insurance would be $42.50 per month or $510 a year. Which is that same as paying an extra 10% in interest.
- 4. Eligibility requirements are very restrictive. The coverage is limited and there are multiple conditions and exclusions.
- 5. The Federal Trade Commission, FTC reports credit card loss protection offers are big with con-artists trying to exploit consumers’ uncertainty. The FTC cautions consumer to not do business with callers who attempt to scare you into buying insurance due to identity theft and credit information security issues.
Credit protection insurance is really a good way to spend money on insurance most people will never use. Consumers can watch their own credit and in many cases on a daily basis with the Internet or telephone systems. It’s a better financial deal to pay off your debt and watch your credit report and credit score.
Related Articles:
- Your Credit Score and How It Relates To Insurance.
- Individual Disability Insurance.
- Risk Management: Protecting Your Assets.
Glossary of Insurance Terms:
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