Credit Card Payment Protection Insurance Worth It?

Posted by CreditCardGuru

Nowadays just about every credit card begs you to signup for their payment protection insurance. If you’re thinking about it (or already signed up) here are some important things you need to know.

All the plans out there are extremely similar, so let’s take a look at the Chase credit card payment protection plan as an example (disclaimer: the costs and coverage details may have changed since this article was originally written).

  • Cost is $0.89 per $100 of your monthly statement balance. So if your billing statement was for $1,200 you would be paying $10.68.
  • For  job loss, disability, or hospitalization payments can be suspended for up to 2 years
  • For eligible “life events” like marriage, having a baby, change of primary residence, and natural disasters, payments can be suspended for up to 4 months
  • For one federal holiday per year (New Years, Labor Day, or Memorial Day) or for an eligible expense of $50 or more, payment can be suspended for one month (can only be used once per year)
  • When the payment protection is activated, no new interest is accrued, no minimum monthly payments are due, and no plan fees are charged

At first glance this may sound like a smart choice, and in all fairness, the Chase credit card payment protection insurance is a bit better than the similar plans offered from some other banks. But it’s unlikely you would be getting your money’s worth with credit card protection insurance and here’s why:

1. Here’s why it’s too expensive

Let’s say your monthly credit card bill was $1,200 on average and you paid that in full every year. That means over the course of a year you would have paid $128.16 annually for the card’s payment protection, regardless of whether or not you used it.

Even if you did use it, during any given month your balance would have been $1,200. Think about it… is it really worth paying over 10% of your average monthly balance every year just for the ability to suspend payments?

2. You may have to jump through hoops to use it

In times like these, a benefit such as credit card protection for unemployment sounds like something there could be a real chance of using, right? Unfortunately yes, job security is non-exist nowadays. However it’s not always easy to activate this benefit.

For example, I came across a complaint by a man name Phil. Him and his wife had been paying for a payment protection program for 2 years, shelling out $216. When his wife lost her job and they tried to activate the benefits, here’s what they found out:

  • You first had to be unemployed for 60 or more days
  • They reportedly had to have a paper filled out by the unemployment agency at a cost of around $25
  • Their most recent payment stub form the unemployment agency had to be sent in
  • Once all that was sent in they were reportedly told approval may take up to 10 weeks

That poster didn’t specify which credit card company he was with, but I have heard from multiple people that activating the credit card payment protection insurance for a job loss is always tedious, regardless of the card issuer.

3. Your debt might only be deferred

Each bank runs their credit card protection insurance differently, but many of them only defer payments. That means your debt will remain the exact same amount from start to finish if you ever end up using the plan. Sure, you won’t be incurring any new interest charges, but if you were looking to avoid interest for a period of time you could simply use balance transfer credit card deals to accomplish that.

Bank of America credit card protection is one of the few plans that does cancel payments while the insurance is activated, but even when you take that into account, it’s still hard to justify the cost given all the drawbacks.

Conclusion?

Credit card payment protection is a big money maker for the bank and rarely makes sense for the customer. Do you agree or disagree? Share your thoughts below.


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Editorial Disclosure: The editorial content on this page is not provided by any bank, credit card issuer, airline or hotel chain, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

10 comments... read them below or add your own

  1. Lisa April 7, 2014 at 4:27PM

    I used it recently on my Capital One Mastercard. It was simple and hassle-free. I was only asked to sign a document stating that I was unemployed every 90 days. The payments began the following month after I called in to activate it over the phone. It was really a very easy process for me, so I guess every company is different.

  2. joeentech March 7, 2014 at 4:49PM

    Not worth it, I had this on my American Express card for over 10 years. Last year I lost my job, had to go through tons of red tape to get them to make my monthly payments. they paid less then what was due (I had to make up the difference). Come tax time they sent me a 1099-misc and put the amount they paid for the year in the Medical and Health care payment box on the 1099 form. When you do your taxes this sets of a red flag that makes you fill out a Schedule C form (business owner). I am not a business owner but I had to file my taxes according to what was on the 1099 they sent me. Also, they don’t send the 1099 form out on time so if your not expecting it and do your taxes now you have to file an amended return.

  3. Joyce February 13, 2014 at 1:44PM

    I too found a balance protector charges on my Home Depot account that I DID NOT authorize, have called that company to cancel the service which did happen…but I want credit for the six months that it was charged without my permission. Was told one to two billing cycles for the credit to appear on my statement; third month now, no credit . Do they even have an address to write to?

  4. lj December 27, 2013 at 7:20AM

    I have two credit cards with chase. I had the credit protection with them and I have to say it was very useful with no hassel. While my husband was out of work I didn’t have to make payments. They only asked that the Dr fill out their form (no fee) to prove my husband couldn’t work for however long he would be off. As long as the form was filled out every month until he returned to work, I didn’t have to make payments. I have also made use of the payment protection on our vehicles. While he was injured, the company paid our car payments. Its the same process. I will say, that having those protections available are very helpful when you are not making much money. Not everybody has good experiences, but I must say that I have. Chase no longer offers that the credit protection but it was helpful when they did.

  5. Michele October 22, 2013 at 9:21AM

    I found a Balance Protector charge on my Home Depot statement after making a purchase. I DID NOT SIGN UP FOR THIS AND BELIEVE IT IS FRAUD. Have since spoken to Home Depot, who claim to know nothing about it. Called bank, and got runaround, and finally had the DISPLEASURE of speaking to Balance Protector directly. Supposedly this program is being cancelled (why does it need to be cancelled, when it was never supposed to be initiated in the first place)? No direct answers were provided…Home Depot knows nothing and Balance Protector claims they will send me documentation in (30) days that proves my authorizing this program. PAPERWORK DOES NOT EXIST, AS I DID NOT AUTHORIZE OR SIGN UP FOR ANY SUCH BOGUS PROGRAM.

  6. L. hammick August 17, 2013 at 3:17PM

    I tried to use protection on a card that had less than $500 balance, I got the run around for more than 8 months, 1st they said the sent me the claim form, then they sent it again, i filled it out and got denied due me sending it in late, i adv i never rec’d the 1st one, & threaten to take action, they then approved the claim, kept telling me it would be processed in 1 to 2 billing cycles, i had to call every month, kept saying the same old line, they are hoping you forget or dont want to take the time to call or fight and just pay your own bill. I cxl it & the card soon after. I wont ever take the protection from the card Issuer becuase it alot of money in their bank & a waste for me. there is one company that covers 5 cards for the same price of one or lower that the greedy banks dupe you for. Their only Interest is you since they arent the banks.

  7. Stephanie February 11, 2013 at 10:43PM

    I actually signed up for protection on accident due to a gift card incentive and later meant to cancel it but have to say, after recently losing my job in September I called to see what it was all about and was stunned! I thought it would just be a holiday month of no payment but no… so far 4 of my credit cards have been paid off in full and actually have credits on them now since they pay the balance off that lines up with your date of job loss and since I managed to struggle minimum payments for 3 months before calling and now have credits from those! I always used my cards and then paid them off the same month so never actually had to pay the fee for this protection as it is based off your statement balance each month. I could not be more pleased and actually plan on retaining these protections as we never know what the economy brings.

    • moe September 17, 2013 at 7:49PM

      what company was this

  8. Virginia E. Newberry January 25, 2013 at 2:22PM

    I recently recieved a letter from Chase telling me my card protection would no longer be covered as of Oct. 31, 2013. Since I have been a longtime customer with them, I called and asked could they refer me to another place to get protection on my card and I also asked was it just me or was it everyone with Chase. They assured me it was everyone and no they could not refer me further. I will be cancelling that card and be done with them. You would think as many years as I have used them since 1982 they would offer some kind of health. I am very dissappointed with them to say the least. V.E.Newberry

    • B. Roth July 11, 2013 at 10:18PM

      Did the same to mom, got the letter about one month ago. she is 88 years old, I wonder ?? Nevertheless they are now history. They are greedy and unethical.

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